A new risk alert issued Wednesday by the Office of Compliance Inspections and Examinations (OCIE) highlights six coronavirus-related areas in which compliance officers at Securities and Exchange Commission (SEC)-registered investment advisers and broker-dealers might want to focus their attention.
The six areas highlighted in the risk alert are in the protection of investors’ assets; supervision of personnel; practices relating to fees, expenses, and financial transactions; investment fraud; business continuity; and the protection of investor and other sensitive information.
Most of the OCIE recommendations revolve around the “new normal” of remote work during the coronavirus pandemic, which gained steam in March and has shown no signs of weakening. The risk alert contains some Captain Obvious recommendations, like: Regularly pick up your mail—even if your office is closed—because, hey, there might be investor checks in there. The alert also notes that even if the office is closed, sensitive data is stored there in paper and electronic forms and should continue to be protected.
OCIE also offered recommendations most compliance professionals working for investment or brokerage firms surely must have addressed by now, in Month 5 of the pandemic, like tightening up policies on the use of personal phones and other non-approved communication by remote employees and implementing stricter cyber-security protocols, particularly in regard to the handling of personally identifiable information.
Wild fluctuations in the market may lead investors to make unusual investment choices or encourage investment advisors to consider new investment strategies, the risk alert said. Compliance departments should be aware of these heightened risks—which could create new issues in regard to conflict of interest, disclosure, and even fraud.
Compliance officers should be striving to understand changes in their firm’s investment strategies as they are being considered, not after the fact, said Josh Broaded, co-chair of the U.S. regulatory team at ACA Compliance Group, a compliance vendor.
“You want to do it together, rather than in a disjointed fashion,” he said of keeping up a dialogue with the firm’s decision-makers and brokers.
Of the six sections in the risk alert, five dealt directly with risks created by the pandemic. Not so with practices related to fees and expenses, Broaded said. That in itself should raise the eyebrows of compliance professionals, he said.
The SEC and OCIE “are using every single opportunity to beat the drum about fees and expenses,” he said. “That they chose to include it means it’s a real area of regulatory focus.”
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