Speaking to a packed audience of compliance professionals at SEC headquarters April 19, Commission Chair Mary Jo White acknowledged the “critical role” that compliance plays as a “first line of defense” in their firms whether they are functioning in-house or relying on contractors, consultants or other third-party vendors for assistance. But she also offered strong words of caution: “you can draw on external assistance, but you cannot outsource your obligations.”
Engagements on the rise
The SEC is noticing an increase in the use of compliance consultants by investment advisers. At the IA/IC Compliance Outreach program, Benjamin Faulkner, an attorney-adviser for the SEC’s National Exam Program in the Los Angeles regional office, spoke of witnessing an increase in compliance consultants conducting mock exams and coordinating forensic and transactional testing. He also reported seeing consultants who sit in on the entire SEC exam process.
The outsourcing of the CCO role was also addressed at the outreach program and has been a focus of the SEC. Last November, OCIE released a risk alert that reminded advisers with outsourced CCOs that they retain the responsibility for adopting and implementing an effective compliance program (IA Watch, Nov. 9, 2015).
At the outreach program, William Delmage, an assistant director with the National Exam program in the SEC’s New York regional office, stated that concerns can arise about the number of firms an outsourced CCO is ultimately working for. If the outsourced CCO is working with too many firms then they are really acting more as a compliance consultant, noted Delmage.
‘Who’s that?’
An exam manager in the SEC’s Chicago Regional Office recalled an instance where an outsourced CCO was certainly spread too thin. Ahmed Abdul-Jaleel called out a case where an outsourced CCO was serving some 30 firms of varied complexities and geographic locations. On top of that, the individual was also hired as a compliance consultant for another 70 engagements. Abdul-Jaleel further pointed to an instance where a firm receptionist was asked for an outsourced CCO by name and she replied “who’s that?”
One of the messages of the compliance program was clear—exercising responsibility is critical. Chair White stated to the compliance audience that “you are critical to our mission of protecting investors and the integrity of the markets.” She added that investors rely on compliance to safeguard assets from misconduct and undisclosed risks.
The Commission has proposed requiring IAs to report on their Form ADVs whether they rely on outsourced CCOs (IA Watch, May 28, 2015).
