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How Can US Compliance Officers Stay Prepared in this Current Regulatory Landscape?
Traders Magazine Online News, November 14, 2017
Back in early October, Cordium hosted a regulatory summit in Boston exploring the current period of regulatory dissonance here in the United States. While the tone coming out of Washington under the new regime has been a call for decreasing regulation, on the ground firms are seeing an increase in activity and focus from the Securities and Exchange Commission (SEC) spread across a number of areas.
Over the past several months there has been an uptick in surprise examinations, a push for increased transparency through revisions in Form ADV and renewed observation on the monitoring and storage of firms’ communications.
Some of the key topics discussed during the Summit included:
Unannounced Inspections
Earlier this year, the Boston office of the SEC restarted the practice of making unannounced inspections – something that used to be a regular part of a regulator’s inspection repertoire. This practice had fallen by the wayside over the past five years or so, 20 unannounced inspections this year suggests the approach is back in fashion.
These inspections add up to about 10% of the inspections in Boston so far this year. While this is a small percentage, firms agree this has a strong psychological effect on every firm in the area, and beyond.
There is no identifiable pattern to the unannounced inspections yet. The cases so far have been with firms that the SEC has specific concerns about, others have been the result of the Chief Compliance Officer not returning a phone call or email from the SEC and some of the visits were chosen at random.
Clearly, all firms must be prepared. They should already be ensuring that they are compliant and everything is up-to-date but they need to put policies and procedures in place should one of these surprise visits occur.
Shift in Inspection Focus
The SEC has also shifted the focus during for inspections. Previously, examiners would “camp out” around a firm’s office for two or three weeks at a time. There has been a shift in examinations to focus on national priorities which are dictated by the SEC headquarters combined with the regional priorities of each SEC branch.
There has also been a more analytical approach to selecting firms for examination based on a variety of sources such as data supplied in filings.
The shift in focus from a national perspective will continue to evolve: it is expected that in the coming years these priorities will be more retail focused, specifically more focused on retail advisors. Firms should expect inspections to expand beyond their head office and into their retail branches.
Private funds should not assume that with the increased focus on retail firms that the SEC will abandon their work in the private fund space. Private funds should continue to have policies and procedures in place for inspections that focus on fees, expenses and conflicts of interest among other things.
Engaging in the Examination
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