Changing Times: How Compliance Officers Should Address Regulatory Changes

Changing Times: How Compliance Officers Should Address Regulatory Changes

If there is one certainty about regulatory compliance, it is that nothing is static (isn’t that one of the things we love most about our profession??). The regulatory framework in which investment advisers, broker-dealers, investment companies and private funds operate changes continuously. Such changes include new or revised statues and rules or can come in the form of regulatory guidance, interpretations and frequently asked questions. Regardless of the form the change comes in, compliance officers need to consider the implications to their compliance program and their firm’s business.

So where do you start? Here are some helpful hints:

  • Impact to Your Business – To assess the ramifications of a rule or other regulatory change to your firm, you first need to understand what the change is. The obvious way to understand the scope of a rule or interpretation is to read the release published by the agency. However, some new rule releases can be hundreds of pages long. Another approach is to participate in webinars offered by trade associations, law firms and compliance consultants. Participation is usually free and often provides reference materials that summarize the rulemaking. Also keep in mind that during and after a rulemaking, an agency may issue subsequent guidance that you will want to review and understand.
  • Socialize the Change Within Your Firm – Regulatory changes do not only impact a firm’s compliance program. Consider the other business units or service providers to which you need to socialize the rule or guidance and include in the conversation (e.g., who are the stakeholders?) There may be direct and/or indirect impacts across your organization, and, as applicable, these colleagues could play a valuable role in operationalizing any new policies. Of course, be sure to advise members of your management team about the rulemaking or guidance and the actions you are taking to investigate the applicability to your organization.
  • Develop a Game Plan – Engage in “backwards planning.” Working backwards from the effective date of a rulemaking and the compliance date, develop a timeline of actionable tasks that need to occur and identify who should be involved in the review and development of new policies and procedures. Don’t forget to include your IT team as utilizing systems and technology can provide cost-effective solutions and process efficiencies. A comprehensive assessment of your firm’s ability to address and respond to the change is essential to identifying needs and resources.
  • Identify What Controls Will Need to Change – As a component of “backwards planning,” consider what aspects of the compliance program and business will need to be changed. Most likely, the following will be affected:
    • Policies and procedures
    • Regulatory disclosures
    • System and technology updates
    • Training materials

In some cases, the firm may also need to hire additional compliance staff, or even new personnel in the business. Consider the new advertising rule – if your firm intends to adopt a more aggressive approach to its use of social media, that could mean adding staff to both compliance and marketing.

  • Who Needs to Know About Policy and Procedure Changes – Once your firm’s policies and procedures have been approved, the revisions need to be communicated to various stakeholders inside and possibly outside your organization. Parties with a need-to-know can include: staff, clients, boards, oversight committees and/or third-party service providers. Another consideration is messaging. What form will the communications and messaging take? Who will be responsible for communicating the changes to each group of stakeholders? Be sure your project planning includes appropriate time to develop and deliver this messaging and any other training that may be necessary.

“The secret of change is to focus all of your energy not on fighting the old, but on building the new.”