President Trump’s anti-regulation agenda will yield fewer but more focused SEC and FINRA examinations, compliance experts say.
The past year saw record-breaking levels of enforcement by both regulators. Auditors from FINRA and the SEC’s Office of Compliance Inspections offer hints each January about their examination priorities, but firms have no way of knowing if they may be targeted, according to Cipperman Compliance Services.
Advisers can keep ahead of the examiners, though, if they ensure their firms’ policies around hot topics like cybersecurity are up to date, executives at the Wayne, Pennsylvania-based consulting firm said Wednesday in a webinar. Though the number of exams is expected to decline overall, firms should not alter their preparations, panelists said.
“Under the current administration, it’s not hidden that he wants to roll back regulations,” said Cipperman COO John Wowak. “With that said, I believe that examinations and policy will be driven by the regulators through the exams.”
The approach will lead to more enforcement actions and penalties against those firms that are hit with exams, he added. Wowak didn't specify how much he thinks exams will decline under Trump.
Cybersecurity, third-party oversight, outside businesses, personal securities and firms’ codes of ethics have lately become areas of interest, according to Jay Haas, a compliance director at Cipperman. They joined compliance procedures, supervision, suitability and fiduciary duty as points of emphasis, he said.
“The regulators have employed a risk-based approach where they target specific areas of the business and focus on products,” Haas said.
If advisers receive a phone call, letter or even a surprise visit alerting them to an exam, they should follow three specific steps, according to Doug Tyre, a vice president at Cipperman.
They need to study the regulators’ latest guidance on priorities, prepare to show documentation of the firm’s remedial steps following any earlier exams and get ready to display their procedures for handling key risks to the business, Tyre said.
A Cipperman client firm recently faced an investigation into its liquidation of a sub-advised mutual fund, he noted. Examiners mandated that the firm provide a pile of documents demonstrating that it had used the best possible method of execution, he said.
“The nature of examinations has typically become more focused in scope,” Tyre said. Such “deeper dives” pose a greater burden on firms, he added, because the regulators probe the issue “at a much more profound level.”
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