Annual Controls Testing
FINRA Rule 3120 requires broker-dealers to establish processes to test the effectiveness of their policies and procedures on a periodic basis. Similarly, under SEC rule 206(4)-7, investment advisers are required to review, at least annually, their policies and procedures that were designed to prevent violations of the Investment Advisers Act of 1940.
Jordan & Jordan can assist broker-dealers and investment advisers in designing and conducting a series of forensic compliance tests as part of their continuous monitoring of the compliance program including, but not limited to, the following:
- Sales practices areas
- Trading and execution
- Surveillance assessments
- Portfolio compliance
- Code of ethics/Core Compliance
- Employee trading
- Registration and Continuing Education
- Regulation SHO
- Market Access
Our surveillance assessment could also include automated testing of a sample of orders and executions against our proprietary surveillance algorithms for best execution, wash sales, spoofing/layering and marking the close. This will allow for validation of your current surveillance monitoring and/or identify potential areas of focus going forward.
Non-routine (one-off) Testing
Jordan & Jordan can also perform detailed client account reviews that may be necessary in response to a customer inquiry/complaint or as part of an internal review. This can include a review for the following activities/behaviors:
- Excessive trading (churning)
- Account reconstructions based on failure to follow instructions
Specifically for asset managers, Jordan & Jordan can perform portfolio reviews to ensure accounts are handled in accordance with their investment policy statements (“IPS”). This includes individual account reviews or multiple account reviews governed by one IPS. These reviews would entail categorization of all the investments in the portfolio over a specified period of time, grouping investments into various asset types and comparing the asset mix to the specifications agreed to by the customer. Our review would document any discrepancies along with explanations or plans for remediation provided by the portfolio manager.