More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
Linda Chatman Thomsen, the director of the SEC's Division of Enforcement, said February 9 that she would leave the Commission and return to the private sector. In the release announcing her resignation, the Commission boasted that during her tenure it had "brought the second- and third-highest number of enforcement actions in agency history," but many think that her legacy will be tarnished by the Commission's failure to detect the Madoff Ponzi scheme.
Former SEC Chairman Harvey Pitt said in an e-mail that he believes the current examination process is "structured in a way to doom the SEC to failure," noting that "there are simply too many regulated entities for the SEC ever to do the kind of job we expect in the compliance area."
It's more than just the structure, argues Pitt, it's also the people. In his Congressional testimony on the Madoff case, whistleblower Harry Markopolos warned incoming Chairman Mary Schapiro that she "will find that she has too many attorneys and too few professionals with any sort of financial background."
Pitt argues for the concept of a "new examination paradigm" under which "every regulated entity would be examined, either annually (larger firms) or biennially (smaller firms)." Those examinations, he says, would be conducted by firms "completely independent of the entities they examine . . . and the examinations would cover whatever areas the SEC believes should be covered. At the end of the examination, there would be a report filed that would be given both to the regulated entity's board as well as to the SEC."
This approach, Pitt argues, "would enable the SEC to detect changing trends and industry problems, and make use of sophisticated personnel to conduct examinations."
Pitt still believes in the Commission. "There is a real need for the SEC and the functions it performs," he says, and he believes "it will rebound from the current difficulties and adverse perceptions" it has suffered recently.--James J. Green and Melanie Waddell