Client Alert
There has been a lot of discussion about the recent SEC request to indicate where an outsourced Chief Compliance Officer (CCO) is being used by a registered investment adviser (RIA). We want to clarify what this means.
The SEC has explicitly said that outsourced CCOs are permissible (http://www.sec.gov/ocie/announcement/ocie-2015-risk-alert-cco-outsourcing.pdf). They are, however, concerned about ensuring that both outsourced or in-house compliance is being adequately addressed. In particular, they have expressed concern about CCOs who do not have sufficient resources to deal with the many tasks involved. We agree.
From the start, Adherence has sought to provide outsourced CCO and other compliance services that give appropriate attention to an RIA’s business. We do this by centralizing most regular compliance functions like manual revisions, calendar and risk matrix creation and ADV filings with individuals who are very experienced compliance attorneys who only do that function but are versed in the nuance of our client firms’ business.
Where we are the named CCO, that person acts as –
- the quarterback for all of the Adherence people – similar to an in-house CCO supervising a large in-house compliance staff; and
- a central point of contact for any and all questions from and about a firm’s regulatory compliance issues.
Moreover, on ALL of our engagements we strive to become an integral part of your firm – involved in issues on a day-to-day basis. We don’t allow any one individual to be named on more than five engagements because we think that more than five is contrary to providing the proper service.
There are outsourced CCOs in the market that hold tens of engagements. We agree with the SEC that this is not sufficient coverage and have built our firm on that premise. Everyone – including the SEC – recognizes that outsourced CCOs play a valuable role in the market. They allow young and understaffed firms to access additional and better compliance experienced resources. We actually think that if a firm builds its business to a certain point, it may then be appropriate to hire a full-time CCO – but that “jump” in AUM frequently doesn’t happen for a while and an expensive staffer can crush a new business. Given the price of a full-time seasoned compliance attorney, outsourced CCOs are an affordable solution and one that the SEC is most definitely supportive of. Finally, for firms that name their own personnel as the CCO, Adherence can be a virtual staff able to step in on a moment’s notice with urgent and/or time consuming matters – and it is clear that the SEC is supportive of adding resources (and they need NOT be full-time staffers).
But the SEC is trying to kill off the low end of the compliance industry – those places that where a named CCO has zillions of firms and provides the same stuff to everyone regardless of the nuances of their business. We think they are trying to raise the entire outsourced compliance industry to the standards that Adherence operates under. We think the low end of this business needs to be addressed and we support that decision.
Jane Shahmanesh and Saleemah Ahamed
