More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- 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.
Members of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises debated Wednesday whether the Whistleblower rules enacted under Dodd-Frank would create “unintended consequences” and spark a slew of whistleblowers running to the Securities and Exchange Commission (SEC) for financial gain.
Rep. Scott Garrett (left), R-N.J., chairman of the subcommittee, said during his opening remarks that “foremost” among the concerns being raised about the Whistleblower rules—some of which have been displayed in comment letters to the SEC—are: “Will the incentive structure created by the Dodd-Frank provisions exacerbate violations by encouraging them to fester and become more serious problems? Does the legislation and the proposed rulemaking allow those complicit in violations to not only escape punishment, but potentially receive massive rewards in spite of their malfeasance?”
A further concern, Garrett said, is that “If internal compliance programs are bypassed, isn’t good corporate citizenship discouraged, and won’t there be a greater likelihood that companies will have less accurate financial statements and that companies will need to restate those financials upon which investors had already relied?”
Rep. Michael Grimm, R-N.Y., on Wednesday introduced proposed legislation designed to preserve “the internal reporting standards used by companies as mandated by Sarbanes-Oxley (SOX), to prevent those involved in wrong-doing from gaining rewards, and by removing incentives for bogus or frivolous claims to be reported to the SEC.”
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. SEC Chairman Mary Schapiro told AdvisorOne in a recent interview that the agency was now “finalizing” its whistleblower rules.
Rep. Maxine Waters, D-Calif., said that she found it unlikely that “whistleblowers are eager to run to the SEC and put their jobs, 401(k)s and friendships on the line.”
When asked by Waters if he thought such a scenario was likely, Geoffrey Rapp, professor of law at the University of Toledo College of Law, said that he thought it unlikely “that whistleblowers will race to the SEC to get a bounty” because under Dodd-Frank, “the information must lead to a successful enforcement action producing over $1 million in monetary sanctions,” Rapp said. “The bottom line is that the SEC often pursues enforcement actions that do not produce that minimum threshold as required for the Dodd-Frank bounty provision to be triggered.”
Robert Kueppers, Deputy CEO of Deloitte LLP, testified at the hearing that Deliotte believes that the whistleblower program “should be implemented in such a way as to establish a constructive balance between strengthening the operation of effective internal compliance programs, and encouraging timely whistleblowing to the SEC.”
Deliotte, he continued, believes that “this could be achieved by a requirement, as a condition of eligibility to receive a monetary award, that whistleblowers report their concerns fully and in good faith through company-sponsored internal compliance systems before reporting to the SEC; alternatively, at a minimum, we believe concurrent reporting to the SEC and internally should be required.”