Gordian Compliance Midsummer Updates

            Greetings to you as we continue on this summer.  In this message you will find details on Gordian’s main office relocation, information on a recent SEC proxy voting bulletin, and a summary of a presentation put on by the SEC San Francisco Regional Office regarding never-before examined investment advisers.
 

Gordian Compliance is Moving August 1!

            Gordian Compliance continues to grow – to the point where we need more room!  We will be staying in the Russ building but moving to a new suite.  Starting Friday, August 1, our new address will be 235 Montgomery Street, Suite 1120, San Francisco, CA 94104.  We look forward to working with you from our new space and invite you to visit us.



SEC Bulletin on Voting Client Proxies

            On June 30, the SEC Divisions of Investment Management and Corporate Finance released a bulletin on proxy voting responsibilities for investment advisers.  Some key takeaways for managers from the bulletin can be broken down into the following categories:
  • Acceptable practices to demonstrate compliance to clients’ wishes
    • Periodically sampling proxy votes to review whether they complied with the IA’s policy and procedures or specifically review a sample of proxy votes that relate to certain proposals that require more analysis
    • IAs should review the adequacy of its proxy voting policy and procedures no less than annually
  • The Proxy Voting Rule does not require IAs vote every proxy.  Some examples that are acceptable include:
    • An IA and client may agree that the time and costs associated with the mechanics of voting proxies may not be in the client’s best interest
    • An IA and client may agree that the IA should vote either with management or in favor proposals made by a particular shareholder proponent, absent a contrary instruction from the client or determination by the IA that a particular proposal should be voted in a different way it would further the investment strategy being pursued by the IA on behalf of the client
    • An IA and client may agree that the IA will abstain from voting any proxies at all, regardless of whether the client undertakes to vote proxies itself
    • An IA and its clients may agree that the IA will focus resources only on particular types of proposals based on the client’s preferences
  • When evaluating the services of a proxy advisory firm to provide voting recommendations, the SEC suggested that the IA consider the robustness of its policy and procedures regarding its ability to:
    • Ensure that its proxy voting recommendations are based on current and accurate information
    • Identify and address any conflicts of interest or other material considerations
You can read the bulletin it in its entirety at www.sec.gov/interps/legal/cfslb20.htm.
 

Never-Before Examined Investment Advisers

            On July 16, the San Francisco Regional Office of the U.S. Securities and Exchange Commission led a panel discussion on the priorities of both the regional office and the SEC has a whole.  This is a summary of that panel’s discussion.

            Firms that have been registered for 3+ years but have not yet been examined are a priority for the SEC.  The discussion focused on two related, yet distinct in the minds of the panelists, topics.  The first was areas the SEC is currently focusing on during exams.  The second was ways in which firms could be prepared for an SEC exam.


Focus Areas for SEC Exams

  • Fee structures
  • Custody Rule violations
  • Firms acting as unregistered broker/dealers
  • Cybersecurity policies, paying particular attention to safeguards against identity theft
  • Business continuity policies in the event of a natural disaster or other similar event
  • Adequate disclosures of conflicts of interest
  • Performance advertising and marketing, including social media
  • Generally inadequate compliance programs
    • Policies that are not tailored to the individual firm and are simply “off-the-shelf”
    • Policies that have not been updated to reflect a new product or new line of business
    • Insufficient documentation of recurring and ongoing compliance tasks 

Documentation, Organization, and Record Retention

Firms should make documentation, organization, and record retention all part of their compliance program.  This will streamline the process of turning over requested documents in the event of a regulatory exam.  The panel suggested:
  • Formalizing and documenting the annual compliance process
  • Documenting instances when the firm deviates from a set policy with an explanation for the deviation
  • Creating a risk matrix to outline pinpoint areas of risk or the firm
  • Practicing responding to a document request list to both organize the required documents and delineate who at the firm is responsible for what
  • Drafting simple bullet point memos or checklists are generally sufficient forms of documentation so long as they are adequate to prove whatever event they are documenting actually occurred

For more information on the content of this summary, please contact Gordian Compliance Solutions at (415) 466-8004 or compliance@gordiancompliance.com

Gordian Compliance Solutions is a strategic partner for developing and implementing practical compliance and risk management solutions for financial industry firms. Our staff combines decades of hands-on experience with the highest customer service standards to provide innovative and efficient compliance consulting.  We strive not only to assist firms with meeting their regulatory obligations and industry best practices, but also to create added value for our clients’ customers.
 

 
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