Why You Need to Document Your Compliance (And How to Do It)
The article emphasizes the importance of proactively documenting compliance through educating all employees, regularly auditing policies in line with SEC and FINRA updates, and using appropriate compliance tools to maintain organized records, ensuring firms are prepared for regulatory exams and can demonstrate adherence to regulations effectively.
Advisors often feel apprehensive about the prospect of an SEC or FINRA exam, largely due to the uncertainty of what regulators might look for and whether the firm is truly in compliance. While it’s impossible to predict exactly what aspect of your firm’s work will be audited, you can be certain that any exam will begin with a document request.
The documentation and records you keep regarding your firm’s activities are essential for demonstrating compliance—not only for your own assurance but also for regulatory bodies like the SEC or FINRA.
The best time to ensure your documentation is in order is before regulators ever approach your firm. Here are key steps to keep your compliance documentation organized year-round:
Educate Your Team
Your Chief Compliance Officer (CCO), or whoever is responsible for compliance, should not be the only person documenting compliance efforts. Every employee contributes to compliance-related documentation, from personal trading records to client interactions.
A robust compliance program starts with education. Your team must be aware of the paperwork required by regulators. CCOs can create training modules and quizzes to test the team’s knowledge of regulatory compliance. Regular skills drills ensure everyone understands documentation requirements.
Regularly Audit Your Policies and Procedures
CCOs should also regularly audit their own work, including internal reviews of existing policies and procedures. Set quarterly dates to review your written compliance policies.
Regulatory agencies like the SEC and FINRA frequently release risk alerts and policy updates. Each review session should consider the latest information from these agencies. If a recent risk alert highlights a gap in your documentation, update your written policies to address it. After making updates, communicate changes to your team and conduct drills to ensure everyone is up to speed.
Select the Right Compliance Tool to Maintain Your Records
Keeping up with paperwork and regulatory expectations can be challenging. A comprehensive compliance tool can help automate processes and prevent important tasks from being overlooked.
A robust compliance tool should:
- Provide a secure, shared space for team access to policy and procedure documents
- Track individual paperwork for items like personal trading, gifts and entertainment, and client management
- Establish shared checklists for visibility into compliance-related projects
- Share risk alerts from regulatory bodies to keep everyone informed
- Build a compliance calendar to help meet all filing deadlines
With all information centralized in a secure tool, CCOs can quickly respond to document requests from the SEC or FINRA, avoiding last-minute scrambles to locate paperwork. An advanced compliance tool can reduce anxiety about exam requests, providing peace of mind that your documentation is ready for any regulatory inquiry.