Last month, the Securities and Exchange Commission’s (“SEC”) Chairwoman Mary Jo White caused a stir within the advisory industry when she issued a speech stating that the SEC will begin zeroing in on “minor infractions” of investment advisers. This past week, Ms. White spoke at the National Society of Compliance Professionals (“NSCP”) National Membership Meeting focusing on how the SEC will approach compliance officers. Ms. White stated that she envisions the SEC to work with compliance officers “to support [compliance officer’s] efforts to create a comprehensive compliance environment within [their] firms,” and that the SEC is “far more interested in helping [compliance officers] succeed before an examination, than we are in catching…a violation in the course of an examination.”
Ms. White gave examples of how the SEC is trying to support compliance officers. One method mentioned the SEC conducting in-person meetings with compliance officers and other senior officials of a firm. These meetings will be used to help identify whether sufficient resources are being provided to compliance personnel, as well as to identify whether compliance is “woven into the fabric of the firm” to allow for an open-dialogue to help promote the roles of compliance officers within the company.
Another method discussed was the SEC’s initiative to use its website to highlight practices, policies and procedures that may be subject to additional scrutiny, as a means of allowing compliance officers to better focus their efforts and resources in areas of need.
Ms. White also highlighted the agency’s new Risk Analysis Examination (“RAE initiative”). This type of examination done by the SEC uses “quantitative analytics” enabling the SEC to analyze the metrics of a business to detect and inform compliance officers of activities, trends and issues within a firm which may have otherwise been unknown, allowing compliance officers to stay abreast of possible areas of need within the firm.
Ms. White also was quick to point out recent enforcement actions of the SEC against advisory firms and compliance officers. She stressed the importance for firms to create, monitor, test and update their compliance programs, and that failure to do so may result in penalties against firms and their officers. As such, it is critical for financial firms to design compliance programs that are customized to its particular needs, which includes effective means of enforcing and monitoring such programs.
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