These are my notes from the “Post-registration update: Where are we now? ” session at the Private Fund Compliance Forum 2012.
Moderator:
Roman A. Bejger, Chief Compliance Officer, Providence Equity Partners L.L.C.
Panel Members:
Christian McGrath, General Counsel & Chief Compliance Officer, GTCR LLC
Adam J. Reback, Chief Compliance Officer, J. Goldman & Co., L.P.
David Smolen, Chief Compliance Officer, Silver Lake
One example of a difficulty is employees who have been subject to identity theft. The panelist physically walked the employee to his office and showed the employee the lock files where the monitoring information is kept.
CCO needs to be a high level position and involved in the firm’s operations. The CCO can’t be effective and work in a bubble. That also means you need to be able to offer resources to them. Sit on key meetings and ask questions. In particular, focus on sources of information and the development of products.
One aspect in defining the role is drawing responsibilities between legal and compliance. There are natural alliances between the repsonsibiliites.
What do you do if you find a “smoking gun” email? First, you have to address it. Then you need to start an investigation. It need not be formal at the onset, but you should document the review. If suspicion seems to be true, then you should formalize the investigation. If it looks like it could create liability for the firm or employee, then you should get outside counsel involved.
Email surrveillance is often fruitless and not a good use of time. Targeted email search when a problem comes to light is important. Confidentiality is VERY important. You should only discuss the email with that person. Gossiping will destroy credibility.
There is no SEC rule on email surveillance. It’s a red flag that the examiners use. They expect it as part of an effective complaince program. Lack of email surveillance can cause them to look closer at the firm. Warn them that a personal email account used for business purposes can be subpoenad by the SEC.
The big struggle post-registration is putting the complaince manual to work and creating the records.
Outside help? The CCO should be able to pick up the phone and call an attorney to help with a problem or legal intepretation. Consulants are very helpful for providing a third party review in a gap analyis or mock audit. On the other hand, you need to avoid a proliferation of outside help. Consultants are better for nuts and bolts questions. A goal of the complaince program should be to reduce the spend on outside counsel and consultants. A eriodic outside review is very important. You avoid self-bias. Look for a consultant who has worked with similar firms. You don’t want to be an outlier. You want to be in the middle of the pack.