More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
With the official launch of its Whistleblower office on Friday, the Securities and Exchange Commission (SEC) also launched a webpage that allows individuals to report a violation of the federal securities laws and apply for a financial award.
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. The SEC finalized its whistleblower rules in May.
The whistleblower program provides a monetary incentive of between 10% and 30% of sanctions the SEC collects for whistleblowers who voluntarily provide the agency with original information that leads to a successful SEC action with sanctions exceeding $1 million.
Sean McKessy, head of the whistleblower office, said during a speech the day of the office’s official launch that the SEC has already seen “an increase in the quality of the tips the agency has received” since passage of Dodd-Frank last July.
McKessy said some of those tips have been in the form of long letters that include detailed information about potential violations. “It’s information like this that can save our attorneys months of investigation and allow us to stop a fraud earlier in the process,” McKessy said.
“Securities fraud is not a victimless crime,” McKessy said. “That’s why it is so important for people to step forward when they witness an ongoing securities fraud or learn about one that has taken place or is about to occur. Our new whistleblower award program makes it easier for people to take that step.”
SEC Chairman Mary Schapiro told AdvisorOne in an interview earlier this year that the SEC’s whistleblower authority will help the agency “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.”
McKessy said the whistleblower program strengthens the SEC’s ability to protect investors in the following ways:
- Better Tips: Over the past several months, the SEC has seen an increase in the quality of tips that it has been receiving from individuals since Congress created the program.
- Timely Tips: Potential whistleblowers are incentivized to come forward sooner rather than later with “timely” information not yet known to the SEC.
- Maximized Outside Resources: With fewer than 4,000 employees to regulate more than 35,000 entities, the SEC cannot be everywhere at all times. With a robust whistleblower program, the SEC is more likely to find and deter wrongdoing at firms it may not have otherwise uncovered
- New Protections Against Retaliation: Employees who come forward are provided with new tools to protect themselves against employers who retaliate.
- Bolstered Internal Compliance: The new rules provide significant incentives for employees to report any wrongdoing to their company’s internal compliance department before coming to the SEC. Therefore, companies that would prefer their employees report internally first are incentivized to a have credible, effective compliance program in place.