Year-end is a busy time for most businesses. For investment advisers and other financial firms, it is especially important to make sure that certain compliance tasks are planned for, to allocate appropriate time and personnel and avoid last-minute scrambles to meet filing deadlines, and if they need to use financial hardship resources to bring investments and business accounts out of the red zone. Below is a summary of key tasks and processes for year-end/early 2014. Please contact us for assistance with any of these, or for any questions that may be specific to your business:
1. IARD Items
Beginning in November of each year, all registered firms must renew their state registrations and notice filings for the following year. FINRA issues renewal statements to each firm, which should be carefully reviewed and paid promptly to avoid delays in processing and ensure timely filings. The schedule varies somewhat each year. The 2014 schedule is available here. Notices regarding the renewal program are issued to firms’ Super Account Administrators (“SAA”) by email.
The renewal statement does not include the SEC’s ADV filing fees. SEC registrants should keep this in mind and submit those fees separately; they can be paid any time, including after the renewal program. Any new state notice filings or registrations should be anticipated and fees submitted so that the ADV filing is not delayed. Firms should allow at least two days for processing all submitted payments, even electronic payments and wires. Fee and payment information is available here. IARD’s “Completeness Check” function catches un-posted fees and will prevent a filing from being submitted.
SAAs should also review all IARD users, remove any that should no longer have access and otherwise adjust privileges as needed. On an annual basis, FINRA requires each firm to certify that the user information on the system is accurate. The timeframe for this varies. Firms are notified by email when the user accounts certification process begins, and each SAA should provide the certification promptly, in no case, not later than the deadline provided in the notification email. Failure to provide the certification will lock the IARD account, possibly delaying filings. Protracted delays in completing this process may result in disciplinary action.
SAAs and other users who have not previously done so will be asked to update their security questions. Any issues regarding IARD access can be addressed by the Firm Gateway Call Center (contact details here).
Finally, note also that IARD experiences a number of shutdowns due to its own year-end processing; filing and payment systems are typically unavailable during these times.
2. Annual Review/Report to Management
SEC registrants must perform an annual review of the firm’s compliance program. Other registrants and exempt advisers may wish to perform an annual review as a best practice, especially if they are planning to register with the SEC in the future. The review can take many forms, including:
a. A running log kept by the CCO or other compliance personnel throughout the year is reviewed and updated with any new information, resolutions and other pertinent details; the log is often edited and reformatted for presentation to management. An executive summary at the front, with additional detail following is a typical format. Exhibits or appendices may be included where appropriate;
b. The CCO uses a checklist to walk-through aspects of the firm’s compliance program, performing any tests and obtaining any reporting by other departments as indicated in the checklist, or otherwise in the firm’s policies and procedures. It may be helpful to include a notes section in the checklist, so the CCO can state how s/he plans to address the findings; or
c. A mock exam, either conducted by a consulting firm, or the CCO. Done by the CCO, this is very similar to utilizing a checklist. The data-gathering and reporting aspects will typically be more formal and extensive than a checklist.
Firms that maintain a risk assessment inventory should review that as well and make any updates required to reflect changes in the firm’s business or its policies and procedures. Firms implementing a risk assessment inventory for the first time may do so as part of the annual review process, or if too busy, then right after to be reassessed in the next year’s annual review.
Most importantly, the CCO should present his or her findings to firm management, ideally in a face-to-face meeting (or conference call in the case of multiple offices). Often, CCOs will distribute the report by email to give management time to review and prepare any questions or discussion points for the meeting.
3. Employee Compliance Training and Disclosures
Although employees receive a compliance orientation on hire, it is important to gather all employees on an annual basis for a group training session, which will enable the CCO to not only reiterate the firm’s employee-facing expectations but to discuss any regulatory updates and answer questions that may be of interest to the employees or firm generally.
In addition, employees must annually certify compliance with the firm’s Code of Ethics, and any other disclosures required by the firm’s policies and procedures.
Firms tend to do these at year end or just after the new year, but they can be done at any time (though a good practice is to keep that timeline consistent from year to year).
4. Prepare for Early 2014 Filings
A number of quarterly and annual filings are due shortly after the new year, including:
a. Form 13F: Quarterly filing, due 45 days after the end of a calendar quarter, or February 14, 2014;
b. Schedule 13G: Annual filing, due 45 days after the end of the calendar year, or February 14, 2014;
c. Form 13H: Annual filing, due 45 days after the end of the calendar year, or February 14, 2014;
d. ADV: Annual filing, due within 90 days of a firm’s fiscal year end; for most this will be March 31, 2014; and
e. Form PF: Annual or quarterly filing depending on type of funds managed and RAUM. Annual filers have a due date of April 30, 2014. Quarterly filers will have due dates of March 3, 2014 (large hedge funds) or January 15, 2014 (large liquidity funds).
Note: the above filings may also require interim amendments if certain information contained in the filing has changed or other thresholds are met. Though not based on the calendar year, firms that manage private funds should review their SEC Form D and state blue sky filings at this time to check for amendments and renewals.
5. Special Considerations for Smaller Managers
Small managers should consider the following:
a. Much of the above assumes a larger infrastructure than may exist at smaller and start-up firms. For example, the person managing compliance may have no one to report to besides him or herself. Even so, the annual review process should be clearly documented and maintained in the firm’s files;
b. Smaller managers may not have any other users assigned in the IARD account. They will still need to complete FINRA’s user accounts certification per the email they will receive when that process begins;
c. Smaller managers may not be subject to a number of the filings listed above, such as 13F, 13H and Form PF; and
d. When the day-to-day compliance tasks are handled in house, in can be helpful to retain a consulting firm to perform annual tasks such as a mock exam for the annual review, conduct employee training and handle filings. Conversely, a firm that outsources routine compliance tasks should take an active role in the annual review process – essentially to review the performance of the consulting firm.
Advisers have plenty to think about as the end of the year (and beginning of the new year) approaches. If you have any questions or would like help with your year end items, please contact us.