NEW ORLEANS Regulators at the Investment Company Institutes Operations Conference here said they will be focusing more on electronic communications and managements attitude towards internal controls as they go forward, in an attempt to be more proactive when examining firms.
As investor confidence has broken down, Securities and Exchange Commission Chairman William H. Donaldson has preached to the financial services community to change the "tone at the top," meaning managements attitude. However, the initiative to legislate attitude left some attendees skeptical as to the practicality of such a task. John Walsh, chief counsel of the office of compliance inspections and examinations at the SEC, along with the rest of the panel on "How to Prepare For an SEC Examination," made it clear that Donaldsons warning was not just rhetoric or done for appearance sake.
- Walsh said that in order to assess the tone at the top, examiners will focus on four areas: reports, attention to compliance, management statements and leading by example. The staff will look at what kinds of reports are personally reviewed by the executive suite of a firm. Attention has to do with time and resources dedicated to the compliance department. Executives statements and their ability to lead by example will also be taken into consideration. Those that resist the initiative are much more likely to have examiners scrutinizing their operations and books on a more frequent basis, Walsh said.
Additionally, one of the areas that will draw increased scrutiny in the examinations is electronic correspondence, specifically e-mail, Walsh said. E-mails showed their importance during the record-setting Wall Street analyst action, and are again playing an important role, Walsh said, an obvious reference to the findings of New York State Attorney General Eliot Spitzers investigation into mutual fund trading practices.