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SEC Marketing Rule Continues to be Top Compliance Concern, Survey Shows

July 14, 2023

For the third year in a row, implementing the SEC’s Marketing Rule for Investment Advisers remains the number one worry for investment adviser compliance officers, according to the 2023 Investment Management Compliance Testing Survey.

Advertising/Marketing was identified by 70% of survey respondents as the “hottest” compliance topic. Cybersecurity followed with 52% and Electronic Communications Surveillance climbed to third in compliance officers’ list of hot topics, named by 35% of respondents. Other key topics noted align with the SEC’s exam, enforcement, and rulemaking priorities, to include:

  • ESG/Sustainability
  • Conflicts of Interest
  • Fee Calculation and Billing/Expenses
  • Private Funds Regulation
  • Digital Assets
  • Insider Trading
  • Valuation

Now in its 18th year, the Investment Management Compliance Testing Survey is a joint project of the Investment Adviser Association, ACA Group, and Yuter Compliance Consulting. It is the most comprehensive resource available for identifying the top concerns of investment management compliance professionals and the types of compliance testing practices and strategies investment adviser firms are using to address core compliance topics.

Notable Findings

  • Advisers are less remote than expected – 49% of respondents are fully back or on their way back to operating as they did pre-COVID.
  • The SEC is busy with exams, with 58% of respondents undergoing an exam or having been examined in the past 5 years. The top focus areas on recent SEC exams were: #1 (tied) Advertising, Books and Records, and Conflicts of Interest (48%), #2 Fees and Expenses (40%), and #3 Code of Ethics (31%).
  • Investment advisers are committed to enhancing their compliance programs, with 64% having conducted or intending to conduct a mock SEC exam. Additionally, a significant portion of respondents (82%) claim to be prepared for an actual exam and have identified issues and best practice enhancements.
  • The top areas of increased testing include: #1 Advertising (69%), #2 Cyber (65%), #3 Electronic Communications (57%), #4 Vendor Due Diligence (44%), and #5 ESG (40%). These top areas are in line with SEC rulemaking and enforcement focus areas reflecting a proactive industry; a continuing trend over the last several years. Also, the majority of respondents did not decrease testing in any area, other than decreased COVID-19 testing.
  • Once again, there is evidence that adviser compliance programs are working, with 67% of firms detecting immaterial violations and 8% finding material matters.

Compliance professionals at 581 investment adviser firms participated in the survey. All firm sizes were represented – with 26% of respondents managing less than $1 billion in assets, 41% managing $1 billion to $10 billion, and 34% managing more than $10 billion. Close to half (42%) of responding firms reported having between 11 and 50 employees, which is consistent with industry data showing that most investment advisers are small- to mid-sized businesses. This year’s survey also revealed that the majority of CCOs (58%) continue to wear more than one hat (with 18% also serving in some legal capacity).

Full results of the 2023 Investment Management Compliance Testing Survey are available on the IAA’s website.

Tags: Compliance, Compliance Testing Survey

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