On November 1, 2010, Carlo Di Florio, Director of the Office of Compliance Inspections and Examinations (OCIE), at the Annual Meeting of the National Society of Compliance Professionals held in Baltimore, Maryland, discussed recent reforms instituted by the U.S. Securities and Exchange Commission (SEC), including establishment of the Office of Market Intelligence, enhancements to the National Exam Program, and current exam priorities.
Office of Market Intelligence to Give TLC to 'TCRs'
Less than a year ago, the Division of Enforcement established the Office of Market Intelligence (OMI) to improve the handling of tips, complaints and referrals (TCRs). While a fair percentage of tips may, for various reasons, not be of practical use, taken as a whole they can establish a pattern, or at least indicate areas to investigate. OMI has started using a centralized database to collect all TCRs and combine that data with other confidential and publicly available information identified in the TCRs. With accurate centralized profiles of the universe of nationwide complaints, information can be shared freely across all SEC divisions and the SEC staff will be better able to see the “big picture” with regard to any given firm. The SEC also expects the recently-enacted whistleblower provisions of Dodd-Frank to increase the volume of TCRs dramatically. In the wake of recent scandals that went undetected, the SEC is taking the TCR process very seriously.
National Exam Program Enhanced and Refocused
The National Exam Program is now increasing its emphasis on making strategically risk-based assessments before commencing examinations. Given the substantial, but still limited, universe of resources available to the SEC, an increased risk-based focus should allow for better staff utilization. In general, the SEC plans to spend more of its examination time on the “front end,” before examiners even walk in the door of a firm. The SEC also hopes to better coordinate its oversight of investment advisers and broker-dealers in an effort to avoid failures that can come from separate examination silos.
Having said that, OCIE still lists its areas of focus for investment advisers and broker-dealers separately. OCIE is currently focusing on the following “hot topics” during examinations:
Di Florio called on the industry to be “proactive” and root out problems before the examination staff does. Although this is a challenge in today’s economic climate, where firms are expecting compliance officers to do more with less, firms ignore “tone at the top” at their peril.
Ivan B. Knauer, Matthew R. Silver and Lisa D. Zeises