Chief compliance officer outsourcing by investment advisors and funds drew fire Monday in an exam risk alert by the Securities and Exchange Commission.

As part of its Outsourced CCO Initiative, the SEC’s Office of Compliance Inspections and Examinations conducted 20 examinations at firms that outsourced the chief compliance officer job to third parties, such as consultants or law firms. The SEC found particular problems at advisory firms and funds that used one CCO for numerous and varied unaffiliated firms, but didn’t give the compliance operation enough resources.

Outsourced CCOs who frequently spoke with advisors and funds rather than using electronic communications and predefined checklists had a better understanding of the firm's business, and the OCIE noted fewer compliance problems.

The SEC said outsourced CCOs that did use generic checklists didn’t appear to fully capture the business models, practices, strategies and compliance risks of the firms they were reviewing. In particular, the SEC noted that compliance manuals created using outsourced CCO-provided templates contained policies and procedures that didn't apply to the firm's business practices.

OCIE also faulted some advisors and funds for potentially harming their annual reviews by only selectively submitting company records.

To see the full text of the alert, vist