More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Securities and Exchange Commission Chairman Mary Schapiro defended a controversial part of the new Wall Street reform law as "central to our ability to develop a robust examination program that better protects investors."
Section 929I, which allows for the SEC to refuse certain Freedom of Information Act requests, was the subject of hearings Thursday on Capitol Hill. Convened by Congressman Barney Frank, chairman of the House Financial Services Committee, the hearings were intended to explore concerns raised about the provision, something that was originally requested for inclusion in the legislation by Schapiro and her predecessor, former SEC Chairman Christopher Cox.
"It will allow the SEC to gain access in a timely fashion to information and data that it otherwise may not receive, thereby further enhancing our ability to maintain an efficient and effective compliance program, while also ensuring that the provision is not used to protect the Commission or its employees," Schapiro said.
Central to the controversy is the protection of confidential sources and informants in SEC enforcement actions, which Schapiro and former SEC Chairman Harvey Pitt said could be compromised without the provision.
"The existing confidentiality provisions of the federal securities laws did not address information the Commission can be expected to receive" from newly regulated agencies contained within the reform legislation, Pitt said.
He noted a number of benefits, including:
- Because 929I provides greater certainty that information submitted to the SEC can be protected from compulsory third-party disclosure, it encourages regulated entities to cooperate with SEC data requests.
- 929I promotes the effectiveness of the SEC by giving it timely access to the information it needs to properly perform its examination, enforcement and oversight duties.
- It promotes the SEC's efficiency by improving its ability to quickly gather important information from regulated entities when performing examinations; the SEC no longer will need to expend time and resources to, for example, send staff on premises to review hard copies because a regulated entity fears public disclosure. This latter example is not a hypothetical, ne notes; it occurs frequently.
However, he noted potential drawbacks as well, including "the potential for rote invocation or for the SEC to use 929I beyond its intended purpose of encouraging regulated entities to cooperate with SEC data needs. Second, as is true of any statutory authority, the SEC theoretically could over-use or misapply 929I to avoid disclosing a broad range of documents, including information that is neither sensitive nor proprietary."