COVID-19 and Compliance – Mitigation Efforts Will Have Compliance Consequences the SEC Soon Will Examine

We understand that COVID-19 has brought many stresses, both personal and professional.  To many private fund advisers, this may seem an appropriate time to allow “compliance” to take a “back-seat.”  However, many business and management decisions your firm now may be contemplating or is already positioned to take likely will have compliance ramifications, now or in the near future.  Rather than let compliance slip while your firm pivots in response to this global pandemic, compliance should continue to have a seat at the table within the management structure.

For example, did the CCO review investor communications disseminated in response to this situation?  Were investor communications appropriately consistent, across vehicles and within each vehicle, or did they vary where they should not have? Is your firm contemplating a change in fund guidelines, a term extension, or other material change?  Has management and compliance recently reviewed the fund documents to understand when LPAC consent is needed?  What do your fund documents say about sustained illness and key person risk, if anything?  We understand that CCOs at some firms are also founders, partners, voting members of the Investment Committee, and the like. But, we remind those firms whose CCO is not also in these positions to bring the CCO and compliance department members to these discussions and the fund documentation analysis, so that the process can be sound and the mitigation efforts without compliance shortfalls.

We all know that fees and expenses are a perennial hot topic for the SEC.  So, is your firm considering a change in fees?  Are you continuing to receive all forms of portfolio compensation?  Are you considering a change to the offset percentage?  Have you had issues or are you going to have issues with capital calls, or is your capital call process in need of tweaking?  Are or will clawbacks be exercised?

Another regular hot button issue is the use of leverage, loans, credit lines, subscription credit facilities, and the like.  Is compliance understanding the firm’s use of these and the potential consequence to disclosures, advertising, performance, valuations, and other firm or fund obligations?

These are just a few examples of COVID-19’s possible impact to your firm.

For the CCOs out there who are a step or two behind the executive decision-making at your firm, we suggest you ask to join the discussions that occur before decisions are implemented. For those of you working with legal counsel to understand available courses of action, support that work with additional consideration to compliance, because there will be compliance related consequences to your legal rights of action.  We know that OCIE will be examining what firms did well and what they did not do well.  We want your firm to be one of the ones that did well.  We are here to help. Email us at info@cssregtech,com.


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CSS frequently publishes blog posts which are written by our team from their observations in the field, at conferences and through experiences with compliance professionals. These posts are designed to further knowledge and share industry best practices. Topics run the gamut, including Form ADV, cybersecurity, MiFID II, position limit monitoring, technology challenges and more. Complete and submit the brief form below to receive notifications when we publish new content.

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