After a five-year hiatus, the SEC's irrepressible Office of Risk Assessment is back yet again. In a press release yesterday, the SEC announced that it had created a new office within the Division of Economic and Risk Analysis (DERA) that will "coordinate efforts to provide data-driven risk assessment tools and models to support a wide range of SEC activities." That new office will be called the Office of Risk Assessment, and long-time SEC followers may find that the name rings a bell.


Way back in 2003, SEC Chairman William Donaldson announced an ambitious plan to create a new risk management initiative called the Office of Risk Assessment that would seek to "head off major problems before they occur." Donaldson liked to say that the new unit would allow the SEC to "look around corners and over hills" to identify future problems, but if ORA succeeded in doing so it was not well-publicized.


ORA muddled on for several years during which it staffed up to to about 7 people, went back down to one person, staffed back up again and then was ultimately combined with the separate Office of Economic Analysis to create a new Division of Risk, Strategy, and Financial Innovation in 2009. Last year this Division, known as RiskFin, was renamed as the Division of Economic and Risk Analysis "to better reflect its core responsibilities and focus." 

Five years after being folded into the new division now known as DERA, however, the "Office of Risk Assessment" is back as a stand-alone office within DERA. The SEC said that the new ORA will use the expertise of DERA's staff of economists, accountants, analysts, and attorneys, along with data-driven, predictive analytics to support supervisory, surveillance, and investigative programs.

Examples of predictive analytics now in use by the SEC include the Aberrational Performance Inquiry, which seeks to find fraud or misconduct by identifying atypical hedge fund performance. In addition, DERA is working with the Enforcement Division’s Financial Reporting and Audit Task Force to develop an “Accounting Quality Model” program that will review a company's financial statement to flag financials that appear anomalous or otherwise stand out from their industry peers.