RIA Compliance and Practice Management Blog

Myth busters: Your RIA’s CCO (or chief compliance officer) is solely responsible for meeting RIA compliance requirements

Posted by RIA in a Box

Nov 22, 2022 8:59:20 AM

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As a registered investment adviser (RIA) chief compliance officer (CCO), you have a lot on your plate. Being responsible for the compliance functionality within your RIA means a lot of different things, however, what it doesn’t mean? That you are solely responsible for complying with all RIA compliance requirements as set out by the state or Securities and Exchange Commission (SEC).

So, who is? Simple, everyone.

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Defining the RIA’s chief compliance officer responsibilities

According to SEC Rule 206(4-7), RIAs are required to designate a CCO to lead their compliance program. This individual can be anyone within your firm with working knowledge of the Investment Advisers Act who also holds reasonable authority. Based on these requirements, and the fact many RIAs tend to be smaller firms, chief executive officers or other executive positions, often hold the title of CCO for the firm.

What are your chief responsibilities as a CCO? As the title would suggest, your role spearheads the compliance program within your firm, aligning your policies and Code of Ethics with your ongoing procedures to monitor and mitigate risk.

But this does not mean you are solely responsible. And in fact, a firm within which only the CCO is responsible for compliance is very likely not in compliance simply because compliance in and of itself is a firm-wide activity and responsibility.

Why a culture of compliance is essential to meeting all RIA compliance requirements

Achieving compliance with an RIA requires the support of every single member within your firm. Defining and enforcing a culture of compliance is one of the single most important tasks for a CCO because it establishes your firm’s approach to compliance or, in the worst cases, complacency.

In creating a culture of compliance, it is critical to remember:

  1. Your firm and its employees may not have a baseline understanding of compliance requirements. It is essential you educate and continually train your employees.
  2. Complacency is not compliance, every member of your firm must do their part to comply with relevant regulations.
  3. Leadership sets the tone for your compliance program. Convey the importance of this program from the top down.

While the CCO may not be the sole responsible party for your firm’s compliance program, they do set the tone and create an environment in which the culture is that of compliance or complacency. With SEC enforcement action at a near record-high, it is more important than ever for every member of your firm to do their part and mitigate risk points throughout their day-to-day.

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RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

Topics: RIA Operations, RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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