SEC halts in-person exams and weighs delay for Reg BI, says OCIE head

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SEC in-person exams are on hold for the foreseeable future as the coronavirus outbreak continues to escalate in the U.S.

This week, OCIE has more than 1,000 staffers on duty, but not a single one is in the field doing an on-site exam, said Peter Driscoll, director of the SEC's Office of Compliance Inspections and Examinations, on a Monday conference call hosted by the National Society of Compliance Professionals.

"All of our examiners right now are remotely working — they're not going into the office," Driscoll said, adding that in-person exams are on hold for the foreseeable future.

"We don't anticipate that changing in the next couple weeks unless things materially change from a health perspective," he said. "We're not sending anyone out in the field unless it's absolutely necessary." Driscoll said only rare circumstances, such as when the commission suspects that a firm was actively swindling funds from clients, would compel staff to show up at a firm to stop the fraud.

Except for a "skeleton crew" that still reports to its Washington headquarters, the SEC is now running almost entirely on a remote workforce, Driscoll said.

Extraordinary times

The upheaval caused by the pandemic has sent the agency scrambling to develop proposals for regulatory relief, including extending the filing deadline for advisors' Form ADV — if firms can demonstrate that the coronavirus prevented them from filing on time.

But Driscoll also sought to shoot down speculation that firms would be targeted for a future OCIE visit to scrutinize their business continuity plan to find out what kept them from filing on time.

TD Ameritrade is first major custodian to enable all employees to work remotely
The firm, which already closed 260 branches, now has 100% of its staff operating virtually.

"These are extraordinary times. We want you to take advantage of the relief to the extent you need it," he said. "No one's BCP plan is working well right now."

The commission is extending the comment period for current rulemaking initiatives, and is even considering delaying the effective date of the Regulation Best Interest conduct standard for brokers, though Driscoll could not say if the commission leadership is leaning in that direction.

"I can't answer that right now because I don't know the answer," he said. "It is certainly something that's been raised and we're aware of it. It's something that's been passed on."

Sympathetic ... to a point

OCIE staffers are moving forward with the remote portion of the exam process, sending document requests and conducting interviews with registrants.

But even there, Driscoll said, exam staff are "sympathetic" to the extraordinary circumstances of the pandemic, and will be more accommodating than usual when firms struggle to produce documents in a timely fashion or comply with other facets of the exam.

"To the extent that you do get a reach-out from one of our exam teams, if you're having concerns or if you're having challenges, please tell them," Dricsoll said. "We're a very sympathetic group right now because we're going through a lot of the same issues that you all are, so I'd encourage you to work with the teams, and our teams have been instructed to work with you all and I think they're very sympathetic right now."

As much as Driscoll paints the agency as understanding of the exigencies of the moment, he also cautions that oversight and compliance will return to normal at some point, and advises firms to carefully document the reasons for trading errors or other lapses that examiners will want explained.

"I think my best advice to you would be to take good notes on why," Driscoll said. "If I were just told, 'Well, we couldn't do it because of coronavirus,' without any other details, I'd look at it somewhat skeptically," he said.

Firms can help their cause by making detailed contemporaneous notes explaining that, say, they were experiencing internet outages amid a widespread bandwidth crunch that kept it from resolving a particular problem, Driscoll continued.

He added: "That's important information that, I think, from a compliance perspective it would be good to document those challenges."

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Coronavirus SEC SEC regulations Regulatory relief OCIE Compliance
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