Call Us : 1-603-965-7791

SEC –Securities Compliance is part of the core – Continued

Earlier this month, Commissioner Kara M. Stein reinforced very clearly the importance of compliance. From her stand point, being compliant is far more complex than just following the rules and checking boxes. Every person in financial services, at any level, has a responsibility to “do the right thing” and report when it is not. Our financial markets reflect the effectiveness of the regulatory environment. The investors, both retail & institutional, rely on compliance. Registered Representatives and Investment Advisors rely on compliance. Structuring, funding and maintaining a proactive and responsive compliance program is not easy. Rules are constantly changing, new regulations are being adopted and each may be interpreted differently because of the business
model, clientele, and resources of the securities firm.

Dodd-Frank is a massive overhaul of the financial services industry. And yet, less than 55% of the regulations have been adopted. Fold in the JOBS Act, cybersecurity, and AML and the level of expertise required to adopt these regulations into a compliance program can be overwhelming.

The CCO, who may also have other responsibilities in the firm, has THE responsibility to design a compliance program that meets the regulations. Do they have the resources – internal and external, to properly meet the objective? When the CCO inventories his/her responsibilities, one may think there are not enough hours in the day. When lacking support or resources, this is certainly true.

Failure in compliance is not an option. When the firm and CCO fail to effectively design, implement and maintain a compliance program, the consequences can be tremendous. The firm, the CCO and others affiliated with the compliance failure will deal with the reputational, economic and career impediments resulting.

Poor compliance comes in a variety of sizes. Depending upon the motivation and available resources, the spectrum ranges from Ponzi schemes, where investors are tangibly maltreated, to weak (or even no) internal compliance procedures, that could prevent and detect regulatory infractions. A couple of examples: not having procedures in place to identify an Investment Advisor or Registered Representatives Outside Business Activity; not being able to confirm proper state registrations; deducting incorrect investment management fees from a client account; to name a few. The lack of a supervision program and the testing of procedures will undoubtedly present issues.

It would be difficult to identify every possible regulatory requirement – but not making the attempt is “not an option”. SEC, State and FINRA examiners make every effort to uncover areas where compliance is lacking or non-existent. The results of the regulators findings will be handled by the appropriate enforcement departments. The firm, CCO and others can expect harsh penalties including fines, sanctions, permanent or temporary disbarment, all of which will be made visible to the public – investors and employees.

When the regulator identifies misconduct, where does the supervisory fault lie? It starts at the top and works its way down the chain of command. For instance, if the CCO can demonstrate that the compliance program in place had adequate resources – supervisors, sound and well-written procedures, evidence the procedures were tested and kept current, supervisory training and a no tolerance policy on non- compliance, then the CCO is probably safe. The regulators would look at the next level of supervision and so on until they identified the individual or team that ignored the red flags of wrongdoing.

Compliance in your firm should have a seat at every executive meeting – with a voice. The compliance program is the foundation to good compliance. The individuals must have the experience, resources and authority to execute the program. Minus that – the executives, including board, should have a backup plan and plenty of insurance.

RegMaven brings over 100 years of compliance and business experience to each client discussion and engagement. Our expertise is building a credible compliance program which will complement your business initiatives and simplify the regulations to which security firms are held. Contact us today by visiting

To learn more about our Enterprise Valuation Assessment visit RegMaven Enterprise Valuation Assessment and complete a brief assessment on your business

Leave a Reply

Website Apps