In today’s dynamic business environment, staying compliant with ever-evolving regulations is paramount for any firm. Compliance professionals play a crucial role in ensuring that their advisory firms adhere to the rules and regulations that govern their industry. One essential tool in their arsenal is the annual compliance risk assessment. This process helps firms identify and address potential weaknesses in their compliance programs, preventing future violations, protecting the firm’s reputation and clients’ trust.
During a recent webinar, hosted by COMPLY, the audience of compliance professionals serving financial advisory firms were polled about the last time they conducted a risk assessment at their firm. The results?
Within the last month – 18%
Within the last six months – 40%
Within the last year – 36%
More than a year ago – 7%
How to develop a compliance risk assessment?
Annual compliance risk assessments are particularly important, as they ensure that the firm’s compliance program remains up-to-date and aligned with the evolving regulatory landscape.
While 58% of advisory firms have conducted a risk assessment within the last six months, a whopping 42% have not. And given significant rulings which have been adopted within that same time frame, several firms might have potential compliance risks at their firms that have not been addressed – and which could open them up to violations and fines.
Here are some key tactics your compliance team can implement in an annual compliance risk assessment:
- Planning and preparation.
The first step is to develop a plan for the CRA. This should include the scope of the assessment, the methodology to be used, the timeline and the responsible parties. It is important to involve relevant stakeholders in the planning process, such as senior management, compliance officers and operational personnel.
- Identifying risks.
The next step is to identify potential compliance risks. This can be done by reviewing internal and external sources of information, such as applicable laws and regulations, industry best practices, internal audit reports and incident reports. It is important to consider a wide range of risks, including financial risks, legal risks, operational risks and reputational risks. Categories to assess may include:
- Marketing/performance.
- Form ADV/disclosures.
- Invoice/fees.
- IPO offerings.
- Soft dollars/kickbacks.
- Compensation.
- Objectives/restrictions.
- Trade tickets.
- Trade execution.
- Non-public information.
- Personal trading and proprietary trading accounts.
- Money and/or securities to/from brokers and custodians.
- Addressing risks.
Your compliance team can implement new policies and procedures, provide training to employees or enhance controls.
- Monitoring.
The mitigation strategies should be implemented and monitored to ensure that they are effective. This may involve conducting regular testing and reviews.
- Staying up to date with regulators.
Most regulators, like the Securities and Exchange Commission, provide periodic risk alerts and reviews throughout the year to let firms know which specific risks may be most relevant. Firms should be aware of these announcements and implement necessary updates within their compliance program to address the findings.
How COMPLY™ consulting solutions can help
With the recent activity level of regulatory bodies, many firms may feel like they are facing a near constant stream of new requirements and potential risk points. COMPLY is here to help. COMPLY offers regulatory compliance consulting solutions to help firms conduct an effective compliance risk assessment.
COMPLY consulting solutions can help firms with their annual compliance risk assessments in a number of ways:
- Expertise and experience.
COMPLY consultants have the expertise and experience to identify, evaluate and prioritize compliance risks. They can also help firms to develop and implement effective mitigation strategies.
- Objectivity and independence.
COMPLY consultants provide an objective and independent perspective on compliance risks. This can help firms to identify risks that they may have overlooked.
- Scalability.
COMPLY consultants can tailor their services to meet the specific needs of each firm. This ensures that the compliance risk assessment is configured to the firm’s size, complexity and risk profile.
Now is the time to lean into your resources and away from potential violations. Learn more about the COMPLY consulting services and solutions, and how we can help your firm avoid violations, prepare for regulatory changes, update your policies and procedures and more!