Supervision of Outsourced Compliance

Outsourcing your compliance tasks does not free you from liability and supervision responsibilities.  Additionally, do you have a policy in place to document how you are supervising the activities of your outsourced CCO?

A CCO, either as a direct employee of a registrant or as a contractor or consultant, must be empowered with sufficient knowledge and authority to be effective. Each registrant is ultimately responsible for adopting and implementing an effective compliance program and is accountable for its own deficiencies. SEC Risk Alert

Member firms often outsource certain business functions for reasons such as cost efficiency. However, outsourcing doesn’t absolve them of their ultimate responsibility for compliance with securities laws and regulations.

To address this, firms should establish an adequate corporate governance structure. This structure should be documented in Written Supervisory Procedures (WSPs) and evaluate essential risk data points during the decision-making process. Responsibilities of the parties involved should be outlined throughout the lifecycle of the vendor relationship.

Best Practices for Outsourced Vendors to include Compliance Consultants:

• Maintain an updated list of your outsourcing vendors, including a detailed list of the services they provide to the firm.
• Actively supervise and monitor each service provider with quantifiable measurements.
• Keep records related to initial and ongoing reviews of outsourcing vendors as documentation of supervision.
• Make appropriate updates to the firm’s business continuity plan.

So, what reporting does your outsourced vendor give you monthly, quarterly, annually to document their work? A proactive firm would provide the portal a compliance consultant could use so they could monitor all actions taken, completed, and pending to illustrate their active involvement in monitoring their compliance program.

Avery by RegVerse automates the time-consuming tasks your consultant usually does. Plus, it lets you see and discuss what they're working on, all in one place. It makes everyone's job smoother.

RegVerse, the powerhouse behind Avery, is a part of Surge Ventures and specializes in transforming the way compliance is managed. Founded by financial industry veterans, we recognized the inefficiencies in traditional compliance management and created Avery to revolutionize the process. By using our innovative technology, we're making it easier, faster, and more efficient for businesses to stay ahead of the regulatory curve. In essence, choosing RegVerse means choosing the future of streamlined compliance.

Take charge of your compliance program by investing in the platform that will evidence proactive supervision.  

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Resources used:

RiskAlert: Examinations of Advisers and Funds That Outsource Their Chief ComplianceOfficers (sec.gov)

Regulatory Notice 21-29 | FINRA.org

2019_SFC_Vendors.pdf(finra.org)

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Key Terms: Outsource, Compliance consultant, CCO, Outsourced vendors, Vendors, Compliance, Procedures, Supervision, Liability, WSP, Policy