lev-os Managing Code Of Ethics Compliance
When To Use
- Reviewing employee personal trading activity against restricted lists and blackout periods
- Processing pre-clearance requests for securities transactions by access persons
- Evaluating outside business activity (OBA) and private investment disclosures
- Auditing gifts, entertainment, and political contribution logs against policy thresholds
- Preparing quarterly or annual code of ethics compliance reports for the CCO or board
- Investigating potential violations flagged by automated surveillance or employee self-reports
Inputs To Gather
- Firm code of ethics policy — current version with all amendments and threshold schedules
- Employee classification roster — access persons, supervised persons, independent directors
- Personal trading data — brokerage feeds, duplicate statements, pre-clearance logs
- Restricted/watch lists — current securities on restricted, watch, and grey lists with effective dates
- Blackout period calendar — fund trading windows, earnings periods, deal-specific lockouts
- OBA/private investment disclosures — employee-submitted forms with approval status
- Gift and entertainment logs — reported items with dates, counterparties, and dollar values
- Political contribution records — if subject to pay-to-play rules [VERIFY: Rule 206(4)-5, MSRB Rule G-37, or firm-specific policy]
- Prior period exception reports — outstanding violations, remediation status, repeat offenders
Workflow
Classify covered personnel — Confirm which employees qualify as access persons under Rule 204A-1 [VERIFY: SEC rule applicability vs. state/non-US equivalents]. Map each to their reporting obligations (initial holdings, quarterly transactions, annual holdings).
Reconcile personal trading records
- Match brokerage feed data against pre-clearance approvals
- Flag trades executed without pre-clearance or during blackout periods
- Identify transactions in securities on the restricted or watch list
- Check for IPO and limited offering participation without prior written approval
- Confirm 30-day holding period compliance where required by policy [VERIFY: firm-specific short-term trading rules]
Review outside activity disclosures
- Verify all OBA and private investment forms are current (typically annual renewal)
- Cross-check disclosed entities against firm client lists and counterparty databases for conflicts
- Confirm supervisory approval is documented for each activity
- Flag any undisclosed board seats, consulting arrangements, or fund interests discovered through other channels
Audit gifts, entertainment, and political contributions
- Aggregate per-employee and per-counterparty totals against annual and per-event thresholds
- Identify unreported items surfaced through expense reports or T&E system data
- For political contributions, verify compliance with applicable pay-to-play lookback periods and dollar caps [VERIFY: two-year lookback under Rule 206(4)-5; MSRB contribution limits]
- Flag patterns suggesting quid pro quo or steering (e.g., concentrated giving to a single government entity's officials)
Document exceptions and escalations
- For each violation: record the employee, date, security/activity, rule breached, dollar impact, and whether self-reported
- Classify severity: inadvertent/de minimis vs. material/pattern vs. willful
- Route material violations to CCO with recommended remediation (disgorgement, letter of education, enhanced monitoring, disciplinary action)
- Track remediation to closure with sign-off dates
Produce compliance report
- Summarize review period, population covered, data sources, and methodology
- Present exception statistics with trend analysis (period-over-period, by category, by business unit)
- Highlight systemic gaps (e.g., late brokerage statement submissions, pre-clearance system workarounds)
- Include open items carried forward and recommended policy changes
Output
A code of ethics compliance report containing:
- Executive summary — review period, scope, headline metrics (total transactions reviewed, exception rate, open violations)
- Personal trading review — pre-clearance compliance rate, restricted list hits, blackout violations, holding period breaches
- OBA/private investment summary — disclosure count, new approvals, denials, conflicts identified
- Gifts/entertainment/contributions summary — aggregate totals, threshold breaches, policy exceptions
- Exception detail table — each violation with employee ID, date, description, severity, status, and remediation
- Trend analysis — comparison to prior periods, emerging risk areas
- Recommendations — policy updates, system enhancements, training needs, staffing considerations
Quality Checks
- Confirm employee classification is current — new hires, departures, and role changes during the period are reflected
- Verify restricted list was applied with correct effective dates (not backdated or stale)
- Cross-check that all access persons submitted required holdings and transaction reports; flag delinquent filers
- Ensure gift/entertainment aggregation uses the correct rolling period (calendar year vs. rolling 12 months) [VERIFY: firm policy specifics]
- Validate that disgorgement calculations use actual trade prices, not estimates
- Confirm that prior-period open items are carried forward and not silently dropped
- Mark any data gaps (e.g., missing brokerage feeds, incomplete T&E data) with [VERIFY] and note impact on conclusions
- Check that all recommended actions include an accountable owner and target completion date