Chief Compliance Officer

Wrenfield Capital Management, a newly SEC-registered adviser, is building its compliance function to satisfy Rule 206(4)-7. The rule requires the firm to do all of the following EXCEPT:

1. A.Adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers ActThis is the core affirmative requirement of Rule 206(4)-7.
2. B.Obtain SEC pre-approval of its written compliance manual before putting it into useCorrect. The rule imposes no pre-approval requirement; the adviser adopts its own manual and is examined on it afterward.
3. C.Review the adequacy and effectiveness of those policies and procedures no less frequently than annuallyThe annual review is expressly required by the rule.
4. D.Designate a chief compliance officer responsible for administering the policies and proceduresDesignating a CCO is one of the rule's three express requirements.

Why: Rule 206(4)-7, the compliance rule, requires a registered adviser to adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers Act, to review those policies and procedures at least annually for adequacy and effectiveness, and to designate a chief compliance officer responsible for administering them. The rule deliberately does not prescribe a specific list of required policies or require pre-approval of the manual by the SEC.

Ambleside Capital, an SEC-registered investment adviser, has grown to 40 employees but has never formalized its compliance arrangements beyond an informal understanding among the principals. Under the compliance rule of the Investment Advisers Act, the firm must:

1. A.File its compliance manual with the SEC and obtain approval before the policies take effectCompliance policies are not filed with or approved by the Commission.
2. B.Adopt written procedures but review them only when the SEC schedules an examination of the firmThe review must occur at least annually, independent of any examination.
3. C.Designate a chief compliance officer who is an attorney admitted to practise in the firm home stateThe CCO must be competent and knowledgeable and empowered to act, but need not be a lawyer.
4. D.Adopt and implement written policies and procedures reasonably designed to prevent violations, review their adequacy and effectiveness at least annually, and designate a chief compliance officer to administer themCorrect. Written policies, an annual review and a designated CCO are the three elements.

Why: The compliance rule requires an SEC-registered adviser to adopt and implement WRITTEN policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules under it, to review the adequacy and effectiveness of those policies and procedures at least annually, and to designate a chief compliance officer responsible for administering them. The policies must fit the firm actual business, so an off-the-shelf manual that does not match the firm operations does not satisfy the rule.