Practice question, Annual compliance review
Walk us through your most recent annual compliance review: how it was scoped, who performed the work, what was tested, how it was documented and what changed as a result.
Taft practice question: not an official regulator question. SEC Division of Examinations, United States (federal). For SEC-registered investment advisers. Evidence category: Governance records.
Not legal advice. A practice prompt for rehearsing how your team explains its controls and evidence. No scoring, no model answer, no implication that a regulator will ask these words.
Authored by Taft. Last checked 2026-11-09. All questions.
Why it is relevant
The Division's fiscal year 2027 priorities say examinations will typically analyze an adviser's annual compliance review. A 2026 staff risk alert reported observations about the timeliness, completeness, alignment, documentation and follow-up of annual reviews.
Sources: [1] Section I.B, Compliance Programs, [2] Section I, Introduction
Evidence to locate
Suggested, not mandatory. A regulator's actual request list governs.
Annual and interim reviews of policies and procedures and any reports prepared, plus the record of compliance exceptions.
Sources: [3] Attachment, Compliance Program and Oversight Process
Follow-up prompts
Which finding took longest to close, and why?
Who received the written review and when?
Applicability
- Applies to
- Advisers registered or required to be registered with the SEC.
- Does not apply to
- State-registered advisers and exempt reporting advisers are not covered by this question's sources.
Cite
Cite the official source first. Then: Taft Compliance Group, Exam-prep toolkit (draft), question q-annual-review-scope, https://taftcompliance.com/resources/exam-prep-toolkit/questions/q-annual-review-scope, last checked 2026-11-09.
Sources
U.S. Securities and Exchange Commission, Division of Examinations, Fiscal Year 2027 Examination Priorities (staff statement). regulator guidance. Section I.B, Compliance Programs, page 6.
https://www.sec.gov/files/2027-exam-priorities.pdf
Checked 2026-11-09.
Supporting passage
The Division's evaluation of compliance program effectiveness is a critical element of the examination process. The Division will review key components of an adviser's compliance program that address areas of its business and operations such as marketing, valuation, trading, portfolio management, disclosure and filings, and custody, as appropriate for each specific examination. Examinations will also typically analyze an adviser's annual compliance review. The Division continues to prioritize review of whether policies and procedures are reasonably designed to address conflicts of interest, in light of a firm's particular operations, and to prevent advisers from placing their interests ahead of clients' interests. Examinations will focus on whether the policies and procedures are implemented, and whether disclosures address fee-related conflicts of interest, particularly those arising from account and product compensation structures.
U.S. Securities and Exchange Commission, Division of Examinations, Risk Alert: Examinations Observations Regarding Investment Adviser Annual Compliance Reviews (staff statement). regulator guidance. Section I, Introduction, pages 1 to 2.
Checked 2026-11-09; published 2026-09-14.
Supporting passage
The Division often requests information regarding advisers' annual reviews during examinations as part of its process to assess whether advisers are meeting their Compliance Rule obligations. The staff has observed, among other things, issues regarding: (1) the timeliness of annual reviews; (2) the completeness of the advisers' policies and procedures for conducting such assessments; (3) the alignment of the assessments performed in relation to the advisers' policies, procedures, and practices; (4) the documentation made and kept regarding those reviews; and (5) the resolution of corrective actions for matters identified during assessments.
U.S. Securities and Exchange Commission, Division of Examinations, Risk Alert: Investment Advisers: Assessing Risks, Scoping Examinations, and Requesting Documents (staff statement). regulator guidance. Attachment, Typical Initial Information Examiners Request of Investment Advisers: Compliance Program and Oversight Process; Valuation; Information Processing, Reporting, and Protection.
https://www.sec.gov/files/risk-alert-ia-risk-and-requesting-documents-090623.pdf
Checked 2026-11-09; published 2023-09-06.
Supporting passage
Compliance policies and procedures in effect during the examination period. Tests performed (i.e., compliance reviews, quality control analyses, surveillance, and/or forensic or transactional tests performed by the firm). Annual and/or interim reviews of policies and procedures, including any reports prepared. Record of compliance exceptions. Inventory of compliance risks and conflicts of interest that forms the basis for policies and procedures and notations regarding changes made to the inventory. Valuation process. Fair-valued and illiquid securities held by clients. Advisory fee calculations. Pricing overrides. Safeguards for the protection of customer records and information. Business continuity plan. Cybersecurity incidents or breaches (e.g., incident description, impact, and remediation).
Changes to this question
No released changes.