Thirteen Questions an Adviser’s Principals Should Ask Compliance (Part One of Two)

Increasingly, regulators are pointing to C‑suite and senior-level personnel as gatekeepers that are crucial to effective governance and controls at their firms. Senior-level personnel’s failure to effectively supervise the compliance function could have significant legal and reputational consequences for both individuals and their organizations. For example, in a recent enforcement action, the SEC alleged that the founder of a registered investment adviser, among other missteps, delegated responsibility for several annual compliance reviews to a compliance officer but did not supervise them despite prior deficiency letters from SEC exam staff criticizing the adequacy of those reviews. In addition, the founder never asked the compliance officer if there were any issues. The Private Equity Law Report recently spoke to Ken C. Joseph, managing director and head of the financial services compliance and regulation practice for the Americas at Kroll, about a list of suggested questions that every principal should use to start a conversation with the firm’s CCO. Before joining Kroll, Joseph served for more than 21 years at the SEC, including as one of the inaugural supervisors in the Division of Enforcement’s Asset Management Unit and as a Senior Officer in the Division of Examinations. This first article in a two-part series discusses the relationship between firm principals and compliance; why the 13 questions were created and how they are meant to be used; and the SEC’s likely view of a firm that uses such questions. The second article will address the importance of each question. See our two-part series on compliance training: “SEC Expectations and Substantive Traps to Avoid” (Mar. 15, 2022); and “Who Conducts the Training and Five Traps to Avoid When Providing Training” (Mar. 22, 2022).

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