From the April 2009 issue of Investment Advisor • Subscribe!

All About Enforcement

More On Legal & Compliance

from 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.
  • Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIA’s failure to stay within the scope of the Section 28(e) safe harbor may violate the advisor’s fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients’ transactions.

It's seems a daily occurrence now that the Securities and Exchange Commission levies an enforcement action against a financial services firm--a tell-tale sign that SEC Chairman Mary Schapiro is sticking to her pledge to beef up the agency's enforcement division. A further sign of Schapiro sticking to her guns is the SEC enlisting in early March the services of the Center for Enterprise Modernization, a federally funded research and development center operated by The MITRE Corporation, to help it conduct comprehensive reviews of internal procedures the agency uses to evaluate tips, complaints, and referrals--no doubt a reaction to the SEC's slipup invirtually ignoring tips about the Bernie Madoff Ponzi scheme.

Schapiro asked Congress March 11 to allow the SEC to use $17 million this year that went unspent by the agency in previous years so that the SEC could add more employees to its enforcement division. "We plan to add staff to the SEC's Enforcement program to focus on pursuing tips, complaints, and other leads, thus increasing the resources the SEC can dedicate to frauds that citizens bring to our attention," Schapiro told the Subcommittee on Financial Services and General Government Committee on Appropriations. Schapiro would use some of the money to expand its inspections of credit rating agencies, "and to strengthen risk-based surveillance and examination oversight of investment advisers."

Another enforcement/oversight related initiative will occur April 15 when the SEC holds a roundtable discussion on oversight of ratings agencies, including SEC rulemaking initiatives, conflicts of interest, and transparency. In announcing the roundtable, Schapiro said that "although our statutory authority to regulate rating agencies has only been effective for less than two years, it is clearly one of this agency's most important responsibilities."

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