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Policies and Procedures Development and Updating

What seems like a fairly simple, straightforward area is one of the areas that firms are most often deficient. Approximately 75% of a deficiency items in a regulatory audit are a result of deficient procedures. The fault lies with the failure to update the procedures for the way the firm conducts business rather than the firm acting in a manner that does not meet compliance standards.

Many compliance people approach written procedures and their implementation in the wrong way. They try to make the firm change its behavior and office procedures to match what the manual says it should be doing. In addition, compliance manuals are often cluttered with sections that do not apply to the firm or call for procedures that are excessive in their application to the firm’s environment. A firm is deficient if it does not follow written procedure even if that procedure is more stringent than regulatory rules or guidelines.

We believe that the manual should be written, to the greatest extent possible, to the existing firm procedures. True, there may need to be tweaks to existing procedure to heighten firm compliance, but rarely is there a complete overhaul of the procedures the firm has implemented by action. This approach tends to result in much greater compliance with written procedures and is generally welcomed by regulators as the written procedures are customized for the individual firm.

The other important considerations in the development and updating of procedures are to keep in mind the human and financial resources of the firm. Written procedures must make business sense if they are to stand a chance of being complied with by the firm. Procedures that are expensive or are beyond the availability or capability of staff will either be ignored or management will decide to risk an audit deficiency in order to avoid the cost.

So what appeared as straightforward is actually an art. Procedure development calls for the author to understand the operations of the business, how the firm earns revenues and where the compliance risks and conflicts of interest lie.  Our professionals excel in understanding the firm’s operations devising an appropriate compliance system/solution rather than utilizing the cookie cutter approach across all firms.

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