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.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
Chief compliance officers received a number of stern warnings on Thursday during the Investment Adviser Association’s annual compliance conference in Arlington, Va., just outside Washington.
Robert Plaze, deputy director of the Securities and Exchange Commission’s Division of Investment Management, warned CCOs during the conference that the newly created Asset Management Unit that’s housed within the SEC’s Division of Enforcement “is dedicated to suing you.”
This unit of the enforcement division, he said, is staffed by people who understand the asset management business and collaborates with not only the investment management division but also with the agency’s Office of Compliance Inspections and Examinations. The Asset Management Unit has “made a really big difference in how effective” the SEC’s oversight of advisors is, Plaze said, and the unit will be able to help the SEC to perform “more effective exams.”
Plaze added that while advisors can expect “more knowledgeable” examiners to come knocking on their doors, he doesn’t foresee an uptick in the number of exams being performed. But the SEC examiners of today, he said, are benefiting from the SEC’s upgraded information technology, which allows them to prepare themselves for exams.
Eileen Rominger, director of the Division of Investment Management, told attendees that the Asset Management Unit is making sure that advisory firms have adopted written compliance policies and procedures, noting three recent cases of firms who failed to do so even after being warned by SEC examiners. "Ignoring an SEC exam warning can result in an enforcment action," she said. And the enforcement division "may act even without incidence of fraud."
But before SEC examiners come knocking, Tom Giachetti (left), chairman of the Securities Practice Group at the law firm Stark & Stark, said firms must ensure they have a qualified CCO in place. The CCO’s role has been elevated, and firms should treat their CCO as a “principal of the firm,” he said. The “CCO should be involved in every facet in the firm’s” activities.
Because the CCO is the front-person during examinations by the SEC, firms must have full confidence in the CCO’s abilities. “If you don’t have confidence in the CCO, you probably have the wrong CCO,” Giachetti said.
What’s more, he said, the CEO and other senior officials at the firm must “know what the CCO is doing.”
Two “hot button” issues the SEC is zeroing in on, Giachetti said, are making sure advisors have proper due diligence procedures and that they aren’t overstating their assets under management. The SEC is focusing on whether advisors “are doing anything that could undermine the underlying integrity of their clients’ assets,” he said. And, he added, “too many firms are misstating their assets.”
Indeed, Christopher Jackson, senior VP and general counsel for Calamos Advisors, said the “mass proliferation of regulations” coming from the SEC and Department of Labor, along with the new leadership at the SEC’s enforcement and examination divisions, the collaboration among SEC divisions, and the Whistleblower office, should be keeping CCOs up at night.
Sean McKessy, chief of the SEC’s Office of the Whistleblower, told CCO attendees that the Whistleblower office is receiving tips and complaints about advisors. Complaints related to advisory firms, he said, include false and misleading representations, insider trading, persons holding themselves out to be advisors, and Foreign Corrupt Practices Act related tips.