SEC Amends Compliance Rule to Require Written Annual Reviews

September 13, 2023

You may have seen that on August 23, 2023 the SEC adopted new rules and amended others, with the goal of enhancing the regulation of private fund advisers. What you may have missed is that ALL advisers must now document their annual reviews. This rule package includes an amendment to Rule 206(4)-7 of the Advisers Act (Compliance Rule) that is applicable to all registered investment advisers.

The Compliance Rule has always required that registered investment advisers review, at least annually, the adequacy and effectiveness of their compliance programs. After adoption of this amendment, the Compliance Rule now requires that the annual review be documented in writing. We have always advised clients to document their annual reviews in a written report because we know the SEC staff will request documentation during exams and it’s difficult for advisers to evidence completion of their annual reviews without documentation.

The amended Compliance Rule does not list specific elements that advisers must include within their written documentation, nor does it spell out the form of documentation that must be utilized. This means that advisers that have an existing practice of documenting their annual reviews should be able to continue with their current practices.

This amendment is effective November 13, 2023. If you do not currently document your annual review or if you just want to ensure your annual review documentation will stand up to increased scrutiny from SEC exam staff, we’d be happy to help.

The SEC’s commentary on the Compliance Rule’s new requirement that registered advisers document their annual reviews can be found on pages 302-308 of the adopting release.