Compliance interview prep.

Senior compliance coach at a long/short equity hedge fund, a CCO or deputy CCO at a US RIA + private-fund adviser, a UK FCA-authorised AIFM, or a multi-strat with an L/S equity book.

What interviewers look for

  • Does the candidate frame compliance as risk-based, evidence-based, escalation-instinct, design controls, surveil, investigate, escalate, document, not as 'I know the rule'?
  • Can they walk an MNPI / expert-network scenario front-to-back, recognise, restrict, wall-cross, cleanse, with escalation pathways named and the post-SAC / Galleon canon in mind?
  • Do they know short-selling mechanics cold. Reg SHO locate + close-out, Rule 201 SSR, naked-short prohibition, UK / EU SSR 0.2% / 0.5% notification thresholds?
  • Are they fluent on Code of Ethics + Rule 204A-1, access-person definition, pre-clearance, blackout, quarterly + annual reports?
  • Can they think about the trading / prime-broker interface (locate quality, borrow availability, rehypothecation, ISDA exposure) as a compliance partner, not a back-office observer?
  • Do they have an evidence + documentation instinct, every locate logged, every MNPI flag investigated and resolved, every Form PF current-reporting trigger event captured on the record?

Behavioural questions to expect

  1. Walk me through your CV.

    What it tests: Story coherence + deliberate HF compliance trajectory. HF CCOs want evidence of a control / rules / risk mindset AND comfort sitting next to PMs and traders all day, not a candidate from long-only or banking compliance who'll be surprised by the trading-desk intensity.

  2. Tell me about a project where you owned a compliance review, a control gap, or a regulatory response end-to-end.

    What it tests: Whether the candidate thinks like an operator under rules + close to the desk, a real issue with a specific risk, structured investigation, escalation decision, documented remediation. Tests ownership + judgment + documentation discipline + the willingness to push back on PMs when needed.

  3. Tell me about a weakness, a failure, or feedback you've received and worked on.

    What it tests: Self-awareness + judgment discipline. Cross-role canonical. Fake weaknesses downgrade immediately. In HF compliance, the costly failure is escalating too late, being too quick to clear under PM pressure, or being inflexible against the desk when a risk-based call was needed.

  4. Why hedge-fund compliance, why not long-only, banking compliance, legal, or audit?

    What it tests: Authentic fit for an HF compliance seat: rules + risk mindset, comfort with trading-desk intensity, the post-SAC / Galleon legacy of HF compliance being a front-line enforcement target. CCOs screen for candidates who'll stay engaged, not treat compliance as a stepping stone to the front office.

  5. Monitoring + surveillance, advisory, Code of Ethics, regulatory reporting, which seat appeals, and why?

    What it tests: Whether the candidate understands the sub-functions of an HF compliance programme and has a genuine, self-aware preference. Monitoring + surveillance = trade + e-comms surveillance, expert-network call review; advisory = real-time PM / trader / analyst questions; Code of Ethics = personal trading + outside activities + G+E; regulatory reporting = Form PF, Form ADV, 13F, Annex IV.

  6. Why this firm?

    What it tests: Whether the candidate has done the homework. Bar: firm-specific evidence on the strategy, fund structure, regulatory profile, programme leadership, and recent regulatory events, not generic 'strong track record'.

  7. How would you describe this firm's compliance programme and where you'd add value?

    What it tests: Whether the candidate has internalised HOW the firm's compliance programme operates, its regulatory scope, its strategy, its leadership, its surveillance + monitoring approach, not just that the firm 'has a compliance team'.

  8. What recent regulatory programme or change has affected this firm's compliance function, and how would you have approached it?

    What it tests: Whether the candidate follows the HF regulatory agenda. Form PF 2024 amendments (current-reporting events), SEC Marketing Rule (Nov 2022), T+1 settlement (May 2024), UK / EU SSR enforcement, Treasury-market reforms touching prime brokers, and can frame the operational implications for an L/S manager.

Technical concepts to master

MNPI + expert networks, the post-SAC / Galleon canon

MNPI definition
Material = information a reasonable investor would consider important to an investment decision; non-public = not yet disseminated to the public via filing, press release, or wide channel.
Expert-network controls (the post-SAC canon)
Vendor pre-approval, consultant pre-clearance (no current employees, no recent insiders), topic scoping pre-call, chaperoning for sensitive topics, retention of call notes / recordings.
Restricted list + watch list
Restricted list = names the firm cannot trade (MNPI + 13D position + other constraints); watch list = names where information has been received that may need restriction.
Information barriers + wall-crossings
Physical + logical separation of teams with MNPI from public-side staff; wall-crossing = a documented, pre-approved process to bring a specific public-side person over the wall for a specific deal / engagement.

Short-selling mechanics, the L/S compliance differentiator

Locate + reasonable belief
Rule 203(b)(1) requires reasonable basis to believe shares can be borrowed by settlement; documented via PB locate ticket or easy-to-borrow list reliance.
Close-out + failures-to-deliver
Rule 204 requires close-out (buy-in) by start of regular trading on T+3 if shares aren't delivered by T+2 settlement; failures aggregate at the broker-dealer level.
SSR / Rule 201 alternative uptick
When a stock falls > 10% from prior close, short sales restricted to executions above the national best bid for the rest of that day + next trading day.
EU + UK SSR net-short notification
Net short positions calculated daily aggregating shares + derivatives + index components; private notification at 0.2% (+ each 0.1% increment) to home regulator; public disclosure at 0.5% (+ each 0.1% increment).

Form PF + private-fund reporting calendar

Form PF Section 1 vs Section 2
Section 1 (annual, within 120 days of FY end) = $150m+ total private-fund AUM; Section 2 (quarterly, within 60 days of QE) = $1.5bn+ qualifying hedge-fund AUM with detailed risk + leverage data.
Form PF 2024 current-reporting events
Qualifying hedge funds must file Section 5 within 72 hours of triggering events: extraordinary investment loss (> 20% in 10 days), margin default, PB termination, key personnel departure (in some cases).
13F + 13D / 13G
13F: quarterly long-only positions > $100m discretion, due 45 days after QE. 13D: > 5% beneficial ownership with active intent, 10 days. 13G: > 5% passive, due Feb 14.
AIFMD Annex IV + UK equivalent
EU + UK AIFM filing: leverage, exposure, counterparty, liquidity; cadence depends on fund AUM (quarterly / half-yearly / annual).

Code of Ethics + personal trading (Rule 204A-1)

Access person definition
Under Rule 204A-1, any supervised person with access to non-public information about client securities transactions or holdings, or any person involved in making securities recommendations.
Pre-clearance + blackout windows
Access persons must request pre-clearance before personal trades; typical blackout windows are 7 days before and after the firm trades the same security.
Quarterly transaction + annual holdings reports
Rule 204A-1 requires access persons to submit quarterly transaction reports (≤ 30 days after QE) and annual holdings reports (within 45 days of becoming an access person + annually thereafter).
Gifts + entertainment + outside activities
Most CoEs govern gifts (de-minimis caps, typically $100), entertainment (reasonable + business-related), and outside business activities (pre-approval for board / outside-employment roles).

Practical drills

  • A PM had a paid expert-network call with a former VP of Engineering at a public software company. The expert mentioned 'we're behind schedule on the next major release, probably a Q3 announcement instead of Q2'. The PM tells you the next morning. Walk me through how you'd handle it.
  • A trader pings you at 10:15am: they want to short 50,000 shares of a $30 mid-cap biotech. The PB's first response: 'hard-to-borrow, we can try'. The stock opened at $32 and is currently at $28.50 (a -10.9% intraday move). The fund's current net short position in the name is 0.18% of issued share capital (the firm is UK-FCA-authorised). Walk me through your decision + the rules in play.
  • An access person (a senior analyst on the tech sector) submits a pre-clearance request to buy 500 shares of a mid-cap tech name at ~$60 ($30k position). The firm's flagship L/S Equity fund last traded the name 3 days ago (a long buy of 80,000 shares); the trading desk has no pending orders. The firm's blackout window is 7 days before and after firm trading. The de-minimis exemption is < 0.01% of issuer market cap (this issuer is $4bn cap, so 0.01% = $400k). Walk me through your decision.

Smart-question anchors

  • Programme structure + leadership. CCO reporting line, deputy structure, three-lines-of-defence
  • Expert-network + MNPI controls, vendor stack, chaperone policy, recent exception trends
  • Short-selling compliance. PB relationships, locate workflow, SSR notification history
  • Surveillance + monitoring stack, trade + e-comms vendor systems, alert calibration, off-channel comms posture
  • Form PF + private-fund reporting, current-reporting trigger playbook, recent threshold events

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