IA Annual Compliance Reviews – SEC Risk Alert
Is Your Annual Compliance Review Exam-Ready?
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Overview
The SEC’s Division of Examinations issued a Risk Alert on September 14, 2026, reminding advisers that the annual compliance review required by Advisers Act Rule 206(4)-7 must meaningfully assess both the adequacy of the firm’s policies and procedures and the effectiveness of their implementation. Examiners are focused on whether firms complete reviews timely, test current practices, preserve supporting documentation, identify deficiencies, and complete corrective actions.
While every SEC-registered adviser knows an annual review is required, the SEC’s message is clear: simply checking the box is not enough.
Where Examiners Found Weaknesses
• Timeliness of annual reviews
• Completeness of review procedures
• Alignment between policies and actual business practices
• Documentation and supporting records
• Follow-through on corrective actions
Perhaps the most significant takeaway is that the SEC expects firms to evaluate whether compliance programs actually work in practice. Policies that appear adequate on paper but do not reflect current operations, regulatory requirements, or business activities create examination risk.
Documentation Is Part of the Deliverable
The Risk Alert highlights a common weakness: firms may perform review activities but fail to preserve the supporting workpapers, testing records, findings, and recommendations needed to demonstrate the scope and quality of the review. Advisers should be prepared to show not only the final report, but also the evidence supporting their conclusions.
Findings Must Lead to Remediation
A finding is not resolved simply because it appears in an annual review report. Firms should assign responsibility, establish target dates, retain evidence of corrective action, and independently validate that the underlying condition has been corrected. Prior-year findings should be revisited to confirm that remediation remains effective.
Steps Advisers Should Consider
• Confirm that the review is completed no less frequently than annually.
• Ensure written procedures explain how testing and validation will be performed.
• Test current business practices against current policies and procedures.
• Maintain detailed workpapers and a centralized annual review file.
• Track regulatory, operational, personnel, and affiliate changes throughout the year.
• Use a corrective-action log and verify closure of prior findings.
• Evaluate whether significant events warrant an interim review.
Bottom line: An effective annual review should be timely, tailored to the adviser’s actual business, supported by evidence, and followed by verified corrective action.
Conclusion
As SEC examination activity continues, advisers should assess whether their annual review process would withstand examiner scrutiny today. A well-designed program should demonstrate what was reviewed, how it was tested, what issues were found, who was responsible for remediation, and how the firm confirmed that corrective action was effective.
Source
SEC Division of Examinations, Examinations Observations Regarding Investment Adviser Annual Compliance Review (Sept. 14, 2026).
Note: The Risk Alert reflects SEC staff views, has no legal force or effect, and does not create new obligations.
