Body of Knowledge

The policies and procedures curriculum will focus on two specific areas: policy and procedure development and policy and procedure monitoring and maintenance.  Through a series of readings and course materials, compliance professionals will learn how to develop a compliance program to ensure adherence to company policies, procedures and internal processes, focusing on external laws, industry rules and securities regulations and best practices. As part of this process, the professional will discover how compliance and operations can work together to help the firm to adhere to its policies.  Additional focus will include how to translate compliance requirements into “plain English” for written policies, procedures and internal controls.

The second part of this curriculum addresses practical tips on implementing and enforcing policies and procedures.  The first component of this process involves professionals learning processes on who is responsible for and how the firm should monitor the regulatory environment for new rules and regulations.  Next, professionals will learn best practices on how to implement and update the firm’s compliance program.  Based upon the regulation’s applicability to the firm’s business model, professionals will need to customize their policies and procedures accordingly.  Finally, the curriculum will focus on the importance of using internal audits to monitor for compliance with the firm’s policies and procedures as well as industry regulations.  Through interviews, testing and surveillance, professionals will learn how to identify gaps in their firm’s procedures.

Readings

1. Final Rule: Compliance Programs of Investment Companies and Investment Advisers; SEC 17 CFR Parts 270 and 275 [Release Nos. IA-2204; IC-26299; File No. S7-03-03] RIN 3235-AI77
2.

Annual Certification of Compliance and Supervisory Processes
3.

NASD NOTICE TO MEMBERS 98-11 -- SEC Approves Rules Regarding Supervision, Review, and Record Retention Of Correspondence

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4.

NASD NOTICE TO MEMBERS 05-29 -- Supervisory Controls Guidance Regarding Rule 3012(a)(1) Requirement to Test and Verify a Member’s Supervisory Policies and Procedures
5.

SEC Speech: The New Compliance Rule: An Opportunity for Change, by Lori A. Richards, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission, Washington, DC.
6.

Rebuilding Ethics and Compliance in the Securities Industry:, Remarks Before the NYSE Regulation First Annual Securities Conference, by Mary Ann Gadziala, Associate Director, Office of Compliance Inspections and Examinations, New York, NY
7.

Better Than 'Business as Usual', Remarks Before the National Society of Compliance Professionals National Membership Meeting, by Lori Richards, Director, Office of Compliance Inspections and Examinations, Washington, D.C.
8.

Integrating Audit and Compliance Disciplines within the Risk Management Framework, by Mary Ann Gadziala, Associate Director, Office of Compliance Inspections and Examinations, New York
9.

The SEC Examination Program: Coordination and Priorities, by Mary Ann Gadziala, Associate Director, Office of Compliance Inspections and Examinations, New York, New York
10.

Remarks before the NRS 21st Annual Spring Compliance Conference by John H. Walsh, Associate Director - Chief Counsel, Office of Compliance Inspections and Examinations
11. Strong Capital Management, Inc., Strong Investor Services, Inc.,.  In the Matter of Strong Capital Management, Inc., Strong Investor Services, Inc., Strong Investments, Inc., Richard S. Strong, Thomas A. Hooker, Jr. and Anthony J. D'Amato Respondent
12.

Delta Equity Services Corporation and Raymond L. Grenier, Jr. ADMINISTRATIVE PROCEEDING File No. 3-10708 DELTA EQUITY SERVICES CORPORATION, and RAYMOND L. GRENIER, JR., Respondents
13.

ADMINISTRATIVE PROCEEDING File No. 3-12538 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION In the Matter of FRIEDMAN, BILLINGS, RAMSEY & CO., INC., Respondent

Every test question on NSCP's certification examination must be referenced to a valid, credible, and current resource. In addition to the aforementioned resources noted by the CDC, the Test Development Committee, during the item writing process, also referenced the following:

  • NASD NOTICE TO MEMBERS 04-79 -- SEC Approves New Chief Executive Officer Compliance Certification and Chief Compliance Officer Designation Requirements
  • Adopting release for Rule 206(4)-7
  • NASD Rule 3010

 

Learning Objective

The professional should be able to demonstrate a thorough knowledge of the role and purpose of a policy and procedure, what to incorporate into a policy and procedure, how to monitor compliance with firm policies and procedures and who to involve in maintaining these internal controls.

Learning Outcomes

Subdomain A. Policy and Procedure Development

Final Rule: Compliance Programs of Investment Companies and Investment Advisers

After reading these Adopting Releases, the Investment Adviser candidates should be able to:

  • List the ten issues that an adviser’s compliance policies and procedures must address at a minimum (to the extent they are relevant to that adviser).

For Investment Companies candidates should be able to:

  • describe the oversight required of investment companies of its service providers.
  • discuss how an investment company’s compliance policies and procedures should address the six important areas identified by the Commission in this Final Release.

Annual Certification of Compliance and Supervisory Processes

The NASD Board of Governors issued this interpretation to the requirement under Rule 3013(b) which requires that the member’s chief executive officer to provide annual certification of compliance and supervisory processes.

After reading this Interpretative Guidance, the candidates should be able to:

  • list and describe the four elements required by the Rule before the CEO (or equivalent officer) can certify that the member has in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures.
  • list the four areas in which the chief compliance officer should have expertise

NASD NOTICE TO MEMBERS 98-11 -- SEC Approves Rules Regarding Supervision, Review, and Record Retention Of Correspondence

On December 31, 1997, the Securities and Exchange Commission (SEC) approved amendments to National Association of Securities Dealers, Inc. (NASD®) Rules 3010 and 3110. The amendments will allow firms to develop flexible supervisory procedures for the review of correspondence with the public. This Notice to Members was issued to provide guidance on how to implement these rules.

After reading this Interpretative Guidance, the candidates should be able to:

  • describe the required compliance policies and procedures pertaining to the review of electronic correspondence

NASD NOTICE TO MEMBERS 05-29 -- Supervisory Controls Guidance Regarding Rule 3012(a)(1) Requirement to Test and Verify a Member’s Supervisory Policies and Procedures

On September 30, 2004, the Securities and Exchange Commission (SEC) approved NASD's Supervisory Control Amendments in their final form. These amendments became effective on January 31, 2005. A fundamental element of the Supervisory Control Amendments is new Rule 3012 (Supervisory Control System). Rule 3012(a)(1) requires a member to designate one or more principals who will establish, maintain, and enforce a system of supervisory control policies and procedures that tests and verifies that a member's supervisory procedures are reasonably designed to comply with applicable securities laws and regulations, and with applicable NASD rules, and to amend those supervisory procedures when the testing and verification demonstrate a need to do so. In response to requests for guidance on the subject, NASD is issuing this Notice to provide members with guidelines members may use to comply with Rule 3012(a)(1).

After reading this Interpretative Guidance and all footnotes attached thereto, the candidates should be able to:

  • describe the role of a policy and procedure
  • list the six steps in designing a compliance supervisory control system

SEC Speech: The New Compliance Rule: An Opportunity for Change, by Lori A. Richards

After reading this article, the candidate should be able to:

  • list the responsibilities of the Chief Compliance Officer and identify to whom the Chief Compliance officer reports and who sets his or her compensation
  • discuss the qualifications of the Chief Compliance Officer
  • discuss the oversight role and responsibilities of the Board of Directors

After reading this article, the candidate should be able to:

  • describe how to integrate the culture of compliance within policies and procedures

Remarks before the NRS 21st Annual Spring Compliance Conference by John H. Walsh

After reading this article, the candidate should be able to:

  • identify the role of a policy/procedure
  • analyze which policies and procedures need to be incorporated into a firm's compliance program

Delta Equity Services Corporation and Raymond L. Grenier, Jr.

After reading this case, the candidate should be able to:

  • assess what the inadequacies of the firm’s policies and procedures

ADMINISTRATIVE PROCEEDING File No. 3-12538 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION In the Matter of FRIEDMAN, BILLINGS, RAMSEY & CO., INC., Respondent

This consent decree alleges that a securities firm failed to establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of material, nonpublic information.  The Commission’s frequent remedy, applied in this case, is to order an Independent Consultant to conduct a comprehensive review of the firm’s compliance policies and procedures.

After reading this case, the candidate should be able to:

  • list why the firm’s policies and procedures were inadequate
  • describe the duties and responsibilities of the Independent Consultant, his or her relationship to the firm, and the duties of the firm in regard to the work of the Independent Consultant.

Subdomain B. Policy and Procedure Monitoring and Maintenance

Final Rule: Compliance Programs of Investment Companies and Investment Advisers

For Investment Companies candidates should be able to:

  • discuss how an investment company’s compliance policies and procedures should address the six important areas identified by the Commission in this Final Release

Annual Certification of Compliance and Supervisory Processes

The NASD Board of Governors issued this interpretation to the requirement under Rule 3013(b) which requires that the member’s chief executive officer to provide annual certification of compliance and supervisory processes

After reading this Interpretative Guidance, the candidates should be able to:
  • describe the annual report required by the Rule including  its:
    • purpose
    • contents
    • internal parties who must review the report

NASD NOTICE TO MEMBERS 98-11 -- SEC Approves Rules Regarding Supervision, Review, and Record Retention Of Correspondence

On December 31, 1997, the Securities and Exchange Commission (SEC) approved amendments to National Association of Securities Dealers, Inc. (NASD®) Rules 3010 and 3110. The amendments will allow firms to develop flexible supervisory procedures for the review of correspondence with the public. This Notice to Members was issued to provide guidance on how to implement these rules.

After reading this Interpretative Guidance, the candidates should be able to:

  • list the minimum required compliance policies and procedures pertaining to
    • reviewing registered representatives’ recommendations to customers
    • processing customer complaints

NASD NOTICE TO MEMBERS 05-29 -- Supervisory Controls Guidance Regarding Rule 3012(a)(1) Requirement to Test and Verify a Member’s Supervisory Policies and Procedures

On September 30, 2004, the Securities and Exchange Commission (SEC) approved NASD's Supervisory Control Amendments in their final form. These amendments became effective on January 31, 2005. A fundamental element of the Supervisory Control Amendments is new Rule 3012 (Supervisory Control System). Rule 3012(a)(1) requires a member to designate one or more principals who will establish, maintain, and enforce a system of supervisory control policies and procedures that tests and verifies that a member's supervisory procedures are reasonably designed to comply with applicable securities laws and regulations, and with applicable NASD rules, and to amend those supervisory procedures when the testing and verification demonstrate a need to do so. In response to requests for guidance on the subject, NASD is issuing this Notice to provide members with guidelines members may use to comply with Rule 3012(a)(1).

After reading this Interpretative Guidance and all footnotes attached thereto, the candidates should be able to:

  • discuss the rationale behind reviewing the design of supervisory procedures as a part of testing and verification

Rebuilding Ethics and Compliance in the Securities Industry:, Remarks Before the NYSE Regulation First Annual Securities Conference, by Mary Ann Gadziala

After reading this article, the candidate should be able to:

  • describe the primary purpose of an SEC comprehensive compliance examination
  • discuss the importance to the SEC comprehensive compliance examination of:
    • understanding the firm’s business and organizational structure
    • evaluating how the enterprise identifies and deals with compliance risk
    • evaluating the structure and coverage of the compliance program

Better Than 'Business as Usual', Remarks Before the National Society of Compliance Professionals National Membership Meeting, by Lori Richards

After reading this article, the candidate should be able to:

  • list the methods for conducting testing of a firm’s compliance policies and procedures

Integrating Audit and Compliance Disciplines within the Risk Management Framework, by Mary Ann Gadziala

After reading this article, the candidate should be able to:

  • differentiate between the role of compliance and internal audit in a risk management framework
  • differentiate between compliance risks and market and credit risks
  • discuss the role of an effective compliance program in managing compliance risks
  • describe the role of internal audits in monitoring a firm's compliance program

The SEC Examination Program: Coordination and Priorities, by Mary Ann Gadziala

After reading this article, the candidate should be able to:

  • discuss how the SEC establishes review of policies and procedures during the examination process

Remarks before the NRS 21st Annual Spring Compliance Conference by John H. Walsh

After reading this article, the candidate should be able to:

  • understand how to review a firm's policies and procedures

Strong Capital Management, Inc., Strong Investor Services, Inc.

After reading this article, the candidate should be able to:

  • describe how SCM’s compliance program reacted when it detected market timing and frequent trading by employees and by Canary
  • discuss why the compliance controls failed in this case

Delta Equity Services Corporation and Raymond L. Grenier, Jr

After reading this case, the candidate should be able to:

  • determine what policies would have detected these violations
  • discuss the importance of preventing failures to supervise, integrating this within a firm’s policies and procedures