A Chief Compliance Officer (CCO) is an executive-level professional responsible for overseeing and managing an organization’s compliance with relevant laws and regulations. Each and every firm registered with the Securities and Exchange Commission (SEC) is required to appoint an internal member of their staff as CCO.
If you find yourself in the position of CCO, it’s important to understand what responsibilities fall on you according to regulatory authorities.
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SEC Requirements for Chief Compliance Officers (CCOs)
We’ve rounded up six key SEC requirements for CCOs you can use to effectively navigate and implement compliance strategies for your firm – let’s get started. The SEC requires that:
1. CCOs must be empowered with seniority and authority.
According to the SEC, all CCOs:
“should be competent and knowledgeable regarding the Advisers Act and should be empowered with full responsibility and authority to develop, implement and enforce appropriate policies and procedures for the firm. And a CCO should have a position of sufficient seniority and authority within the organization to compel others to adhere to the compliance policies and procedures.”
Those three bolded words are fundamental to the SEC’s requirements for the role. While “empowered” indicates a deep knowledge of the Advisers Act of 1940, “seniority” provides you with a deep understanding of your firm’s unique operations and compliance needs. Likewise, the term “authority” indicates that as CCO, you have the power and agency to implement a compliance program.
Additionally, independence is a key theme in the SEC’s expectations for CCOs, since it’s critical for impartial assessments of compliance risks and for the effective implementation of corrective actions.
2. CCOs must design, implement, maintain and enforce a comprehensive compliance program.
As CCO, you are expected to design, implement and maintain a comprehensive compliance program tailored to the specific risks and operations of your firm. The program should include written policies and procedures reasonably designed to prevent and detect violations of securities laws.
Developing and maintaining your compliance program might include researching technology solutions or new tools that could streamline or improve processes. You’ll also need to stay updated on any real or potential rule changes that could affect your team and/or clients (with the SEC, as well as any state or local regulatory agencies).
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In the event that there is a violation of the compliance program at your firm, you should have the authority and knowledge necessary to correct the error, enforce any consequences and get your firm back on track.
3. CCOs must facilitate annual reviews.
It’s crucial for CCOs to take an active role in facilitating and overseeing the annual review process to ensure compliance with SEC requirements. The goal of an annual review is to assess whether the compliance program is effective in preventing and detecting violations of securities laws, and is required per Rule 206(4)-7 of the Investment Advisers Act to be completed at least annually.
Additionally, any findings or deficiencies identified during the annual review should be addressed promptly, and the compliance program should be updated as needed to enhance its effectiveness.
4. CCOs must implement employee training programs.
The SEC expects firms’ CCOs to establish and maintain effective compliance programs, which includes providing training to employees to ensure they understand and comply with applicable laws and regulations.
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Training helps to build a culture of compliance, in which all employees within a firm understand their personal responsibility in achieving compliance goals.
Keep in mind that training isn’t meant to be an initial or one-time endeavor, but an ongoing practice. You’ll also need to periodically evaluate the effectiveness of any training and make updates as necessary.
5. CCOs must communicate with internal and external persons.
As CCO, you are typically responsible for reporting any material compliance violations or conflicts of interest to senior management, stakeholders and – in some cases – to the board of directors. The nature and frequency of these reports may vary depending on the organization’s structure and policies. CCOs will also likely be involved in communication with SEC examiners during routine examinations or inquiries.
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Furthermore, the SEC has established a whistleblower program that encourages individuals, including CCOs, to report potential securities law violations directly to the SEC. The program provides protections and incentives for individuals who come forward with credible information about wrongdoing.
6. CCOs must oversee the creation and submission of annual reports, disclosures, filings and other necessary documents.
You are required to submit annual reports to regulatory bodies, providing insights into the effectiveness of your organization’s compliance activities. These reports contribute to transparency, accountability and continuous improvement.
Reports and documentation include:
- Annual compliance review reports
- Filings related to changes in ownership, personnel or business operations
- Disclosure documents
- Form ADVs
- Form PFs
*Note that the above list is not exhaustive by any means and there may be additional documentation under your responsibility as CCO depending on your specific firm.
Acting as CCO comes with a lengthy list of responsibilities – but with a strong understanding of these six CCO SEC requirements, you can build a compliance program within your firm that promotes high ethical standards and client transparency.
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