SEC Offers Guide to Outsourcing Compliance
The SEC’s Office of Compliance Inspections and Examinations has issued guidance to advisers and funds looking to outsource the Chief Compliance Officer role. Recognizing the “growing trend” to outsource compliance activities to third parties, the OCIE staff conducted a review of 20 firms and described elements of compliance programs “where the outsourced CCO was generally effective.” These elements include: regular (in-person) communication with management, sufficient “registrant support” of the outsourced CCO, access to documents and information, and CCO knowledge of the business and regulatory requirements. The SEC also highlighted the importance of customized documents and testing over standardized checklists and template manuals.
OUR TAKE: We completely agree with, and support, the SEC’s standards for compliance outsourcing. We have built our firm on these four principles of client engagement, access, knowledge, and customization. We encourage all advisers and funds to consider these factors when deciding which firm to use or whether to outsource or hire internally. In this regard, firms should ask compliance firms about the qualifications and depth of the team, how often they come on-site, how many CCO relationships each person undertakes, and how the firm creates and executes the compliance manual and related reporting and testing documents. For further help, CCS has created a sample Compliance Services RFP for use in selecting third party compliance resources (see http://blog2.cipperman.com/wp-content/uploads/2015/11/Compliance-RFP.doc).