Policies and procedures are sets of rules and principles that guide and standardize an organization’s processes. Policies outline the expectations and principles that guide behavior and decision-making, while procedures provide detailed instructions on how to complete tasks.
In regulatory compliance,
Policies and Procedures is:
A firm’s regulatory compliance Policies and Procedures manual is the backbone of the compliance program, explaining in detail how the adviser plans to mitigate risk and protect the client’s best interests. Per SEC Rule 206(4)-7, “it is unlawful for an investment adviser registered with the Commission to provide investment advice unless the adviser has adopted and implemented written policies and procedures reasonably designed to prevent violation of the Advisers Act by the adviser or any of its supervised persons.”
Policies and Procedures may include:
- Portfolio management processes, including allocation of investment opportunities among clients and consistency of portfolios with clients’ investment objectives, disclosures by the adviser, and applicable regulatory restrictions.
- Trading practices, including procedures by which the adviser satisfies its best execution obligation, uses client brokerage to obtain research and other services (“soft dollar arrangements”), and allocates aggregated trades among clients.
- Proprietary trading of the adviser and personal trading activities of supervised persons.
- The accuracy of disclosures made to investors, clients, and regulators, including account statements and advertisements.
- Safeguarding of client assets from conversion or inappropriate use by advisory personnel.
- The accurate creation of required records and their maintenance in a manner that secures them from unauthorized alteration or use and protects them from untimely destruction.
- Marketing advisory services, including the use of solicitors.
- Processes to value client holdings and assess fees based on those valuations.
- Safeguards for the privacy protection of client records and information.
- Business continuity plans.