The Notice introduces three new models for registrants and their Chief Compliance Officers (CCO). The first model would permit smaller registrants to share a CCO, the second would allow larger firms with different business lines to have more than one CCO, and the third model would allow staff to consider an individual’s industry specific experience when determining proficiency as CCO for a non-traditional or specialized firm. For the first model, registrants would need to demonstrate certain concerns, such as potential conflicts and constraints on time commitments, would be addressed, and the individual would likely require previous registration as a CCO. Comments are being sought from registrants as to how the models address their needs and how they may be used in their operations.
Overview of the Council’s Comments:
In our letter, we comment that the shared CCO model may be effective, particularly for smaller registrants in the categories of Investment Fund Manager, Exempt Market Dealer and/or Portfolio Manager. We believe the model would also be helpful for certain larger firms, such as private equity firms, that may require securities registration for dealing activities but whose registrable activities are limited. We believe the model can replicate the situation where a firm hires a CFO that also performs that function for one or more other firms, and result in additional professional CCOs being available to more firms. We note, however, while the UDP is responsible for overseeing the effectiveness of a firm’s compliance system, when a firm utilizes a shared CCO, additional prescriptive UDP functions might include regular testing for compliance, documents, results and actions to ensure the model remains appropriate, or periodic firm self-assessments of securities law compliance and testing of internal controls as it relates to the effectiveness of the model. We also commented that in order to attract professional CCOs to participate in a shared model, it may be prudent to revisit the restrictions on conducting activities through a professional holding corporation, particularly for individuals who are not registered in any other category.