The Securities and Exchange Commission’s exam division is targeting bad brokers to complement the crackdown being conducted by the securities regulator’s enforcement division, according to Pete Driscoll, director of the agency’s Office of Compliance Inspections and Examinations.
The number of advisors being examined by the agency also is “up 20% from where we were last year,” said Driscoll at the SEC Speaks annual conference, which took place in Washington on Saturday.
Former SEC Chairman Harvey Pitt asked Driscoll if OCIE is “complementing” the SEC enforcement division’s focus on broker recidivism through its exams.
“We do look at recidivism in a number of ways,” Driscoll responded at the conference, sponsored by the Practising Law Institute.
OCIE’s Risk Analytics and Surveillance, or RAS team, he explained, spends “a lot of time tracking registered reps” that have disclosures or reps that the agency or the Financial Industry Regulatory Authority have levied actions against.
“In an era when firms are trying to grow, particularly the middle market firms, to bring in as many reps as possible to spread that overhead for their businesses, we worry that they’re taking on reps that may have been let go [by] another firm or may have had a disciplinary history,” Driscoll said. So the RAS team tracks “where those reps go.”
Firms gathering reps with “a lot of disclosures” or a prior action against them, he continued, “will lead us to focus on that particular firm as a high-risk firm.”
Boost in IA Exams
The shifting of 100 examiners from the broker-dealer to investment advisory space last year resulted in 15% of advisors being examined in 2017 — a 40% increase from the 11% rate of 2016, according to Driscoll.
“So far this year we’re up 20% [in advisor exams] from where we were last year,” Driscoll said. OCIE staff, he added, have “focused on efficiencies, high level data analytics and risk selection.”