The Friday List: The Risks of the Dual-Hat Model for CCO and/or FINOP

Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues.  Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.

We hate the practice of dual-hatting i.e. appointing a senior executive with non-regulatory responsibilities as a Financial and Operations Principal or Chief Compliance Officer.  The SEC, through several enforcement actions, also appears to dislike the practice, which it alleges to have caused a wide variety of regulatory breakdowns.  The dual-hat model also exposes senior executives to direct personal liability.  In today’s list, we offer 10 significant risks of the dual-hat model identified in a series of SEC enforcement actions.  For reference, we have included links to our blog posts where you can read more.

 

10 Risks of the Dual-Hat CCO or FINOP Model

1. Failure to supervise executive conduct.
2. Taking undisclosed fees and/or overbilling.
3. Under-resourcing the compliance function.
4. Ignoring cited exam deficiencies.
5. Engaging in conflicts of interest.
6. Inadequate disclosure.
7. Not conducting required annual compliance reviews.
8. Using a stock “off-the-shelf” compliance manual.
9. Failure to implement compliance policies and procedures.
10. Not properly calculating net capital.