Tuesday, February 9, 2010

Regulators Will Engage Third-Parties When Appropriate

Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

Although much will be expected of regulators over the next several years, it is unlikely that their budgets will be enhanced commensurately. As a result, creative affiliations will be established with the private sector, to include in-house compliance professionals and external advisors. 

U.S. Securities and Exchange Commission: We have fewer resources than had just five years ago – and a market that has grown exponentially over time. That is just one reason why we have been seeking ways to leverage third parties to assist us in our core mission of protecting investors. For instance, we recently adopted a rule that leverages independent accountants to perform asset verification and custody control reviewsto better protect advisory clients. We recently established a new process to encourage corporate insiders to cooperate in our enforcement matters. And, we have been pushing for legislation that will enable us to compensate whistleblowers who provide us with actionable information.

But the work of Chief Compliance Officers should have the most meaningful impact. For it is you who are on the front lines making sure your firms are complying with the law, the rules and guidance that we offer. It is you who are on the ground alerting colleagues to avoid conflicts of interest, and ensuring that your firms are providing clear, simple and meaningful disclosure. And, it is you who can prevent problems before they ever emerge. …

In particular, it is critical that you, as compliance professionals, understand your firm and who it serves. You need to know its clients and its investment strategies. You need to know your firm’s business partners, including custodians, administrators and prime brokers, as well as how they are selected. Ask yourself whether you know who your firm trades with and what your counterparty risk is. And, give careful thought to how the money moves at your firm, including potential conflicts of interest and the effect of compensation on decision-making. And, finally, are you regularly reviewing communications involving employees and officers to ensure everyone is following the rules?

Together, if we continue our work to implement effective regulations and compliance programs, we can prevent fraudulent schemes from occurring detect instances of non- compliance sooner before investors are harmed, and promptly correct problems that do occur. [1]

[1] Ms Mary L. Schapiro, Chairman of the U.S. Securities and Exchange Commission, Remarks at the CCO Outreach National Seminar, January 26, 2010