CCOs urged to see the ‘big picture’

Compliance officers are attending deal team meetings and requesting more interviews with senior management to better understand firm-wide compliance risks.

Despite CCOs’ mantra of “the devil being in the detail,”  delegates at the 2015 PEI Private Fund Compliance Forum in New York were encouraged to take a step back and see the firm’s “big picture” to sniff out compliance risks.

 On Wednesday, delegates expressed a growing need to attend investment committee meetings or speak with senior partners to better understand the firm’s operations and risks.

“Day to day you’re worried about people pre-clearing trades or quarterly certifications, meanwhile the [US Securities and Exchange Commission] is focused on accelerated monitoring fees,” one delegate at the conference shared onstage. “Three years ago I didn’t even know what accelerated monitoring fees were.”

CCOs are circulating enforcement case press releases with staff and participating in more meetings that fall outside of their traditional purview “to understand the firm and make the argument that they need to be involved in more things than they were before,” a second delegate echoed.

“Now it’s cybersecurity. I’m having to learn about our IT infrastructure in a way I never thought possible before the SEC made it a focus area,” a third delegate said.

Often cited at the forum was BlackRock’s recent $12 million settlement with the SEC for allegedly failing to disclose a conflict of interest involving the outside business activity of one of its key portfolio managers.

The first delegate speculated BlackRock’s CCO was “too in the weeds” to see the firm-wide compliance failure involving the outside business interest. “There wasn’t ongoing monitoring, or he was too satisfied with the general counsel’s answer to push it further. If you’re too busy chasing Form PF, and not really considering what impacts you at a big level, you’ll make those mistakes.”

Dual hats 

Compliance officers that double as the firm’s general counsel or chief financial officer have an advantage in staying aware of firm matters, onstage panelists at the forum agreed.

“As the general counsel and CCO, I’m part of the deal negotiations, so I know first-hand some of the terms being discussed that might be important to my compliance role,” the first delegate said.

Nonetheless, the need for a dedicated CCO is becoming more apparent to smaller and mid-size firms as the duties of the compliance officer grow.

It is also an area of interest to SEC inspectors. For CCOs that wear two hats, “examiners will ask how they split their time, and based on the size and complexity of the business, form an opinion if a division of roles is appropriate,” a former SEC inspector at the forum shared. “It goes back to the point of seeing the big picture. As the firm grows, take that macro view to see if it’s time to hire additional support staff.”