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.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Strong enforcement by the SEC is “absolutely critical” to market integrity, Mary Jo White said Tuesday at SIFMA's annual meeting in New York.
In a colloquy with Bloomberg Television’s Peter Cook, the new chief of the SEC made it clear the agency would have zero tolerance for misconduct. “Any institution — large or small — can undermine investor confidence” with its actions, she said.
White waved away the suggestion that the SEC was “too soft” and had gotten too close to Wall Street. She said the agency had produced a good record in the financial crisis — before her arrival — overseeing the return of some $3 billion to harmed investors.
She acknowledged, however, that the agency has a credibility problem and that its program could be strengthened. She said it would require admissions of guilt in instances of serious harm to investors or egregious fraud, a policy shift she announced soon after taking the agency’s helm in June.
At the same time, the SEC would continue its much-criticized “no admit no deny” policy in certain settlements as this can bring accountability and get money to investors quickly.
These actions are intended to send a message, White said. They have a deterrent effect, and they inform the public.
Asked whether the SEC had treated SAC Capital and its founder Steve Cohen fairly, White declined to discuss Cohen as his case remains open. But she asserted that SAC Capital had been treated fairly, and that the huge settlement was a good one.
White said the agency would continue to pursue high-profile malefactors, but would not ignore small violators to the extent resources allow. The idea of going after small fries harks back to the “broken window” deterrent approach to law enforcement during Rudolph Giuliani’s mayoralty in New York. White noted, for example, the September enforcement action against 23 firms for short selling violations.
She also said the agency’s testing of firms would continue unabated, as it was very effective in identifying internal problems early and helping firms correct deficiencies before they lead to something worse.
On another front, the SEC is under tremendous pressure to finish work on the Volcker rule by year-end. White said her staff were working with other agencies to meet that deadline, but declined to promise delivery by then.
The rule, part of the Dodd-Frank Act, is named for former Federal Reserve Chairman Paul Volcker and is intended to restrict proprietary trading by commercial banks.
Some have suggested that the SEC and the Commodity Futures Trading Commission should be merged. White said there was a “lot of logic” in the proposal, but noted that both are strong agencies and any merger would not happen soon.
She praised outgoing CFTC Chairman Gary Gensler as a “tremendous regulator,” and said Timothy Massad, whom President Barack Obama has nominated to replace him, was an excellent choice, “smart and high minded.”
Asked what had been her biggest surprise after coming on board at the SEC, White said she had already appreciated the SEC’s broad mandate, but was stunned when she saw the agency’s behind-the-scenes activities and the work of the staff. She was surprised by the diversity of the agency’s responsibilities, and by the vastness of what it has to cover.
She said she “relished the challenge.”
Check out How the SEC Plans to Be ‘Everywhere’ on ThinkAdvisor.