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Volume 32, Issue 2

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Monday, 22 April 2019 16:39

Compliance Program Evolution: The Need for a Compliance Management System

Compliance has yet to adopt a proper management system to substantiate the critical role they play. SEI’s Kevin Byrne discusses how, rather than continuing to raise compliance issues as they occur, CCOs should graduate to consistent, ongoing management-level reporting.

Compliance programs today are at an interesting crossroads. In 2004, the SEC adopted rule 206(4)-7, requiring all registered investment companies and investment advisers to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws. Firms learned they had to review those policies and procedures annually for their adequacy and the effectiveness of their implementation and to designate a chief compliance officer (CCO) to administer the policies and procedures. Thus, the compliance program as we know it today was born.

Firms hired CCOs and tasked them with creating programs to protect investors and comply with federal securities laws. CCOs built their programs with the tools of the time – principally Microsoft Office – and while there is more experience to draw from, they largely continue to manage their programs the same way today. Policies and procedures are maintained in MS Word. Risk assessments are maintained in Excel. Communications are stored in Outlook. Documentation is maintained on shared drives or in SharePoint.