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SEC urged to beef up FINRA oversight: GAO

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The Securities and Exchange Commission needs to tighten its procedures for overseeing the Financial Industry Regulatory Authority, the Government Accountability Office said Thursday.

In its report, “Securities Regulation: SEC Can Further Enhance Its Oversight of FINRA,” Congress’ investigative arm states that while the securities regulator has taken some actions since GAO suggested in 2012 that the agency beef up its oversight of the self-regulator, the SEC has yet to develop “specific performance goals and measures, with corresponding targets to monitor its progress toward the goal of enhancing” FINRA oversight.

Specifically, the GAO report found that SEC’s risk-based oversight program could be “more robust and consistent with risk-management and federal internal control standards.”

In response to the GAO report findings, Andrew Bowden, director of the SEC’s Office of Compliance Inspections and Examinations, told GAO in an April 16 letter that OCIE and its Office of Market Oversight will conduct an analysis which OCIE will use “to develop specific performance goals” regarding FINRA oversight.

Also, GAO said the SEC needs to formalize procedures for documenting its oversight determinations, “such as selecting FINRA areas for inspections and any changes made to planned oversight activities.”

Bowden responded in the letter that Market Oversight is in the process of drafting “formal, written procedures to document its decision-making process.”

The agency also needs to perform an assessment of internal risks, such as staff availability and competing priorities, to successfully meet FINRA oversight program goals and objectives, GAO advised.

Among the steps the SEC has taken to boost its oversight of FINRA was appointing a senior special counsel focused on FINRA and new markets to work with SEC management in coordinating FINRA oversight activities and reviewing information to inform the risk assessment.

Another step was the transition of its FINRA district office inspections, which evaluate various FINRA regulatory programs, from a set schedule (or cycle-based) model to a risk-focused model. “Under this risk-focused model, staff analyze information and data, such as the number of high-risk firms in a district, to identify risks and make recommendations for which offices to inspect.”

The SEC also revised its process for assessing FINRA’s broker-dealer examinations to inform its assessment of FINRA program risks.

See also:

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SEC chief: fiduciary, third-party audit rules to advance this year


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