SEC’s Observations Regarding Investment Adviser Annual Compliance Reviews

On September 14, 2026, the U.S. Securities and Exchange Commission (the “Commission”) issued a Risk Alert highlighting observations from its examinations of SEC-registered investment advisers regarding annual compliance reviews. The Compliance Rule requires SEC-registered investment advisers to adopt and implement written compliance policies and procedures and to review those policies and procedures annually to assess their adequacy and effectiveness. The Commission routinely requests detailed information regarding advisers’ annual compliance reviews during examinations, making thorough reviews and comprehensive documentation essential to demonstrating compliance with the Compliance Rule.

Commission’s Observations of Adviser’s Annual Compliance Reviews

• Timelines of Annual Reviews: The Commission observed advisers did not perform reviews of their compliance policies and procedures, at least annually. Examples the Commission observed were that advisers had gaps in their annual reviews (some years were omitted); performed annual reviews for periods greater than 12 months; treated compliance training or annual personnel attestations as an annual review; and failed to take corrective action after receiving previous deficiency letters from the Commission for failure to perform their annual review.
• Incomplete Policies and Procedures for Annual Reviews: The Commission indicated that in some instances, advisers had adopted policies requiring annual compliance reviews but did not establish detailed procedures to perform the review. The procedures did not clearly define the scope or methodology of the review. In other cases, advisers’ written policies identified specific compliance areas for annual review, but the annual reviews did not cover the areas.
• Inconsistency Between Annual Reviews and Written Procedures: The Commission noted that advisers did not perform annual reviews consistent with their policies and procedures. The Commission indicated that Advisers did not follow the processes outlined in their policies and procedures or the annual reviews as to the effectiveness of Reviews  or  addressing of incorrect documentation and procedures.
• Misalignment Between Policies and Practices: The Commission observed that advisers’ annual reviews did not align with their business practices. For example, advisers did not identify issues related to fee and expense billing, proxy voting, custody, marketing, regulatory filings, and oversight of third party vendors.
• Maintaining Annual Review Documentation: The Commission observed advisers documented their annual reviews but failed to maintain documents in their books and records. Examples observed by the Commission included advisers discussing compliance violations in their annual review reports without maintaining documentation of the testing performed, issue identified, or recommendations; failed to prepare annual review reports as required by their policies and procedures; and failed to document the annual reviews in the specific format required by their policies and procedures.
• Implementation of Corrective Actions: The Commission noted advisers did not take corrective action after their annual reviews recommended changes to their policies and procedures, disclosures or business practices. In some instances, advisers indicated in their annual review reports that corrective actions were already implemented, but the issues identified during the prior annual reviews persisted.

Key Takeaways

The Risk Alert indicates that advisers should approach the annual compliance review as a comprehensive annual evaluation of the adequacy and effectiveness of their compliance programs, supported by sufficient documentation and analysis, and, when necessary, the implementation of corrective actions. Based on the Commission’s observations, advisers should consider the following:

• Conduct Annual Compliance Reviews: Advisers should ensure that reviews are performed annually without gaps and that the review period is clearly documented.
• Adopt and Implement Procedures: Advisers should adopt detailed procedures for conducting the annual review that define the testing and validation methodology, review period and scope, and required documentation. Advisers should then follow those procedures during annual reviews.
• Align Policies with Practice: Advisers should use the annual review to determine whether the written policies reflect the adviser’s current business practices, risks, and regulatory requirements.
• Maintain Books and Records: Advisers should retain records of the annual review, including supporting documentation, identified deficiencies, and any recommended corrected actions, as part of their required books and records.
• Implement Corrective Actions: Advisers should address any recommendations or correction actions identified in a timely manner and retain documentation evidencing the completion of any resulting remediation.

Stark & Stark’s Investment Management team remains available to assist with matters regarding the Compliance Rule, including reviewing compliance policies and procedures, performing on-site or remote annual compliance reviews, and presenting annual compliance meetings.