The Securities and Exchange Commission conducted more than 1,530 advisor exams last year, 11% of which led to enforcement referrals, and expects to keep up the volume established in the past four or five years even while it is shifting focus, according to recent comments by SEC officials.
First, there may be a little more restraint ahead with sweep exams. The SEC’s Office of Compliance Inspections and Examinations (OCIE) will now give the five commissioners input on planned sweep exams, or at least alert them to the sweeps in an effort at improved coordination, according to Commissioner Paul Atkins. Atkins, who addressed the Investment Advisor Association’s (IAA) compliance best practices conference in Washington February 28, spoke with disdain of some SEC staff amassing large penalties the way that some “athletes collect trophies,” and of examiners seeking ill-gotten “regulatory glory” with tallies of their fines and sweeps. “Enforcement fines should not be the focus of enforcement,” Atkins said, noting prison and other measures send a stronger message.
Atkins also remarked that the SEC should not be overzealous and penalize advisors retroactively for problems occurring before a new rule has taken effect, nor set regulatory policy during the exam process, nor use obsolete or technologically unfeasible requirements during inspections.
For the future, expect a more “balanced” approach to exams, said OCIE Chief Counsel John Walsh, speaking at the same conference.
Last year, 52% of OCIE exams were regular exams, and 48% were for cause or other reasons. Walsh said he expects that to continue, noting that the word “sweep” is over-used. In fact, risk-based sweeps are a declining part of the exam program, Walsh said, because “balance is the goal,” and the office is looking out for emerging risks.
OCIE will be pursing a relatively new concept called statistical exams targeted toward lower-risk advisers, using statistics to select firms for forensic testing, and will also be rolling out a pilot for very large institutions whereby a monitoring team or a clearing house oversees the various investigations of that institution going on around the country.