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.
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
Mary Schapiro, chairman of the Securities and Exchange Commission (SEC), recently talked with AdvisorOne Washington Bureau Chief Melanie Waddell about a broad range of issues, including how the agency’s new Whistleblower office is coming along, as well as an issue that seems to have fallen off of the radar, but nonetheless remains near and dear to every advisor’s heart: revisions to mutual fund distribution fees under Rule 12b-1.
The SEC created the Whistleblower office after Dodd-Frank mandated that the SEC pay rewards to individuals who voluntarily provide the Commission with original information that leads to successful SEC enforcement actions and certain related actions. The comment period on the proposed set of rules that the SEC will use to implement the whistleblower program expired on Dec. 17, 2010.
Schapiro told AdvisorOne that the agency is now “finalizing” its whistleblower rules. Since creating the whistleblower office, the SEC has seen a “significant increase in high-quality tips,” according to SEC spokesman John Nester.
Waddell: How’s the whistleblower office coming along?
Schapiro: Our whistleblower authority will help us maximize our resources and our effectiveness by increasing the high-quality tips that we might not otherwise receive, which I think are important to effective enforcement. We’ve hired a terrific new director of that office, Sean McKessy, and we are finalizing the [whisteblower] rules and have gotten lots and lots of comments all over the board on the whistleblower rules. I think it’s headed in the right direction.
Waddell: Have you gotten a lot of tips since creating the Whistleblower office?
Schapiro: We always get a lot of tips. One of our problems historically is that we lacked the central data base for consolidating all of the different tips and being able to link them together and analyze them and share them across the agency and across staff across the country. But we’ve developed this Tips, Complaints, and Referral (TCR) system that now, for the first time, has a single intake mechanism for all of the tips and they all reside in one
database and we can share the information throughout the agency much more effectively. [Not being able to share this info] was an issue during the Madoff Ponzi scheme. That [TCR system] is a huge step forward for us.
If you look at the Boston Consulting Group report on the SEC [which was mandated by Dodd-Frank], they referenced the [TCR system] as really cutting-edge technology done exactly the right way in terms of how it was developed by the agency. That gives us a much better tool for handling the tips and complaints that do come in—and we have received many thousands [of tips] every year. Right now the way we are handling [the tips], since we don’t have the resources to bring new staff into the whisteblower office, we have existing enforcement staff that are reviewing and tracking all the whistleblower complaints, and then we assign them out for investigation.
Waddell: Any plans to move forward with revisions to mutual fund distribution fees under Rule 12b-1 reform? Has it been tabled due to Dodd-Frank?
Schapiro: It hasn’t been tabled [because of Dodd-Frank]. The comment period expired some time ago and as soon as we have more bandwidth we can turn our attention back to it before too long. …We have a lot of rules coming through and they have to go through this little tiny funnel, which is five commissioners; we’ve had a pretty full plate over the last eight months.