The SEC’s Office of Compliance and Inspections (“OCIE”), recently, issued an alert—more like a shot across the bow—to BDs and RIAs regarding its concerns over activities in the industry concerning the challenges encountered by COVID-19. See https://www.sec.gov/files/Risk%20Alert%20-%20COVID-19%20Compliance.pdf. As part of its efforts, OCIE made certain recommendations concerning: (1) investor asset protection; (2) personnel supervision; (3) fees, expenses, and financial transactions policies; (4) investment fraud; (5) business continuity plans; and (6) sensitive information protection.
OCIE complained that firms were not doing enough to protect investor assets. OCIE wants firms to make sure they have the appropriate practices in place to guard client assets. OCIE also believes that firms are not doing enough to supervise their personnel given the health issues surrounding COVID-19. OCIE wants firms to ensure that these people are properly supervised since most are not readily capable of oversight and interaction not working at firms.
Similarly, OCIE identified firms having problems with controls relating to their fees, expenses, and financial transactions. Firms, apparently, according to OCIE, have not been informing clients of these items, and possibly creating financial conflicts of interest when certain transactions are made. Coupled with these conflicts, OCIE has found evidence of investment fraud as well.
Firms were also found to have not properly executed their business continuity plans. OCIE was particularly concerned that certain firms were not properly executing critical business functions during the pandemic. Essentially, OCIE was accusing many firms of “dropping the ball.” Finally, OCIE indicated that firms were not protecting sensitive customer information, since, among other things, firms were using remote access and personally-owned devices, as well as personnel creating records away from the firms.
In short, OCIE encourages firms to remain vigilant regarding fraudulent activity, customer information, conflicts of interest, and supervision, among other things. Contacting securities counsel is one way of preparing for an eventual OCIE examination as well compliance before it is too late.