One of the requirements of registration as a registered
investment adviser is the appointment of a Chief Compliance Officer and the
establishment of a formal compliance program. The SEC stated that a firm need
not hire a new person to be the CCO. However, there will be a substantial time
You can spread some of the compliance work to multiple
people in the firm, though the CCO will ultimately be responsible for
oversight. Another option is to send some of the work outside the firm that
would outsource some or most of the compliance functions.
Insider trading monitoring is one of the candidates for
outsourcing. There is a lot of data and a lot of paperwork to track. Even for a
private equity firm that does not regularly trade in public securities, there
is plenty to keep a person occupied during the week. For a private equity firm,
some trade tracking software will go a long way to help the CCO (and the
employees) deal with the invasive and tedious requirement to track employee
The SEC rules also require an annual review and update of
the compliance policies and procedures. This too is a likely area for
outsourcing. A third party can provide additional insight to the firm as to
what your peer firms are doing and what issues the regulators are focusing on.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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