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May 28, 2019 at 01:00 PM
The Securities and Exchange Commission’s exam chief is warning advisors to not scrimp on their compliance programs and advising them to elevate the chief compliance officer’s role at their firms.
In a recent speech, Pete Driscoll, director of the securities regulator’s Office of Compliance Inspections and Examinations, stated that he views compliance officers as “partners;” he highlighted the importance that compliance programs and compliance officers “play in ensuring that market participants and firms protect investors.”
“We cannot underscore enough a firm’s continued need to assess whether its compliance program has adequate resources to support its compliance function,” Driscoll said.
Compliance officers “are on the front lines of ensuring registrants meet their obligations under applicable securities laws and regulations.”
He noted that advisory firm CCOs’ fear that they “bear the ultimate responsibility for the success or failures” of any compliance program are not warranted.
“A CCO, while a critical component to the effectiveness of any compliance program, is just that, one component,” explained Driscoll. “As the Advisers Act Compliance Rule states, a CCO is responsible for ‘administering’ the compliance policies and procedures that the adviser, not just the CCO, adopts.”
Consequently, he added, “I believe that compliance obligations and opportunities lie with personnel firm-wide, including importantly senior management and ownership, the tone from the top, and the first line or business side of an enterprise.”
That is not to say, though, “that OCIE does not have high, perhaps very high expectations for CCOs,” according to Driscoll. OCIE exams, he continued, have shown there are “competent CCOs that are not empowered to live up to the role that the Commission described in the adopting release of the compliance rule,” because they lack “the full authority to develop and enforce policies and procedures and be of sufficient seniority and authority” within the firm.
“Without a solid compliance culture, supported by a sincere ‘tone at the top’ by senior management, a firm stands to lose the hard earned trust of its clients, investors, customers and other key stakeholders,” Driscoll warned.
FINRA’s Cook on Reg BI As the SEC works toward finalizing its Regulation Best Interest proposal for brokers, two issues are front and center for the Financial Industry Regulatory Authority: how to implement the new rule and potential changes to the broker-dealer self-regulator’s own rules, FINRA CEO Robert Cook said in mid-May.
“Wherever the SEC lands, it may have implications for our rulebook,” Cook said during a question and answer session at the Institute for Portfolio Alternatives’ annual conference in Washington. “Let’s say that [the SEC] standard incorporates the [FINRA] suitability standard within it; then it seems like it might make sense for us to look at our suitability rule.”
FINRA also is “thinking more generally about … aspects of our rules that might need to be adjusted/aligned with where the SEC lands,” Cook said. “It’s not surprising, because most of the sales practice requirements historically have come from the FINRA rulebook. Reg BI is sort of federalizing sales practice issues.”
Philosophically, Cook added, “it doesn’t make sense that you would have rules where there’s a risk of inconsistency in approach.”
In separate comments to ThinkAdvisor after his remarks, Cook said that as it stands now “Reg BI incorporates the suitability rule, but adds to it; there are other requirements there that are more explicit with additional requirements.”
