Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues. Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.
We hate the practice of dual-hatting i.e. appointing a senior executive with non-regulatory responsibilities as a Financial and Operations Principal or Chief Compliance Officer. The SEC, through several enforcement actions, also appears to dislike the practice, which it alleges to have caused a wide variety of regulatory breakdowns. The dual-hat model also exposes senior executives to direct personal liability. In today’s list, we offer 10 significant risks of the dual-hat model identified in a series of SEC enforcement actions. For reference, we have included links to our blog posts where you can read more.
10 Risks of the Dual-Hat CCO or FINOP Model
- Failure to supervise executive conduct.
- Taking undisclosed fees and/or overbilling.
- Under-resourcing the compliance function.
- Ignoring cited exam deficiencies.
- Engaging in conflicts of interest.
- Inadequate disclosure.
- Not conducting required annual compliance reviews.
- Using a stock “off-the-shelf” compliance manual.
- Failure to implement compliance policies and procedures.
- Not properly calculating net capital.