Earlier this week, the South Carolina Securities Division sent an urgent request to all state-registered investment advisory firms in the state to review its current policies and procedures manual and to also send an electronic copy to the state by Monday, August 4, 2014. Much like the North American Securities Administrators Association (NASAA) 2013 report which found that 16.7% of all registered investment adviser (RIA) firms examined had supervision-related deficiencies, the state of South Carolina also notes that there have frequently been a number of deficiencies discovered during examinations related to inadequate policies and procedures manuals or a lack of evidence of the firm actively following its own outlined procedures.
Some of the common compliance deficiencies that South Carolina cites in its notice include:
- Out of date manuals
- Manuals that are too generic and have not been tailored to the adviser’s business
- Improper references to the wrong statutes or regulations (e.g. reference to the Investment Advisers Act of 1940 instead of the South Carolina Uniform Securities Act)
- Lack of ongoing review of the manual
- Lack of completion of forms or attestations as required by the manual
As RIA compliance consultants, we want to remind all RIA firms that the policies and procedures manual (also commonly referred to as the compliance manual) needs to be a living and breathing document that grows or changes in lockstep with any business changes to an investment advisory firm. Even if your RIA firm is not a state-registered firm in South Carolina, this notice should serve as a good reminder to sit down and review your firm’s policies and procedures manual to ensure it properly fits your firm and that no changes are needed.
It would not be too surprising to see some additional states make a similar request in the coming months and this is a great opportunity to take a proactive approach to one of your firm’s most important compliance requirements. We can not emphasize enough how important it is to have a tailored policies and procedures manual that has been customized for and carefully reviewed by your firm.
For state-registered RIA firms in South Carolina, it is vital that you take this request from the South California Securities Division very seriously. The state makes it clear that investment advisers who fail provide their policies and procedures manual by August 4 can expect to be referred for administrative action. If you previously purchased a non-tailored or outdated manual, now is the time to review the manual and also consider updating the manual to ensure that it fits your investment advisory firm’s current business model and processes.