Guidance Update Requires Funds to Address Adviser Gifts and Entertainment

From the article, “Guidance Update Requires Funds to Address Adviser Gifts and Entertainment “published in the March 9, 2015 issue of ACA Insight. 

© 2015 ACA Insight and ACA Compliance Group. All rights reserved. Reproduced with written permission of the publisher.

 

Guidance Update

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“…a fund’s investment adviser are presented with gifts, favors or other forms of consideration … from persons doing business, or hoping to do business, with the fund,” the guidance update states.

Why did the SEC staff issue this reminder now? “There’s got to be something behind the curtain,” said Eaton Van Winkle partner Paul Lieberman.

“When the SEC staff issues a reminder, it could be a predicate for action against those advisers and funds that have taken no remedial action after the reminder was issued.”

 

Best practices

Given the issuance of the guidance, what should smart compliance officers at advisers and funds do?

Consider the following:

• Re-visit codes of ethics, written supervisory procedures, and other policies and procedures. “See whether a change is needed,” Lieberman said. “If you have a pre-approval process, how well is it working? See how it’s being used. Do you want to continue it?”

• Issue periodic reminders about gifts and entertainment policies to staff. Kanter suggested that the holiday season would be a particularly good time to do so.

• Dig into books and records, both operational and financial. Make sure you know who keeps copies of records, who supervises their upkeep, and whether the books and records are being utilized. “Trace the money,” said Lieberman. “Were exceptions to any practices granted?” he asked, and, if so, “Was there an appropriate review process?”

• Certification. “Specific certifications regarding acceptance of gifts and entertainment can be included in other quarterly or annual certifications that an adviser or fund might have in place,” Kanter said.

• Refocus on conflict of interest disclosures in Form ADV and in fund prospectuses. “If the disclosures don’t match what’s conducted in the business office, there is a serious issue,” Lieberman said.

• Utilize the training program. Send out a compliance bulletin including the guidance update, reemphasizing the SEC staff’s concerns. Urge employees to review policies and procedures, as well as current conflict disclosures, Lieberman said.

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