Far from taking an adversarial stance toward the industry, enforcement officials from the SEC and FINRA are asking for wealth managers’ help in averting more future compliance cases.
In a May 17 panel at FINRA’s annual conference, SEC Associate Enforcement Director Melissa Hodgman and FINRA Head of Enforcement Jessica Hopper shared the key lessons for financial advisors and wealth managers from recent compliance cases. The message they imparted is that engaging early and often with regulators can help firms avoid or reduce the impact of ones coming months or years down the line. They joined other regulators who have already
For example, Hodgman cited the regular SEC data sweeps to see if firms are complying with the reporting requirements of anti-money laundering laws.
“We're heading into a turbulent time,” Hodgman said. “We're heading into a time where your policies and procedures may have to change with regard to this, as well as other monitoring. People are in economic trouble. We often see that also as a time when we see more fraud. And so, I would recommend to you, this is a good time to look at those processes and procedures broadly.”
Hopper also mentioned a case from December in which FINRA investigators
“These are things that I'm sure will keep you all up at night,” Hopper said. “Make sure your systems are actually set up at the very basic level to be communicating. When you have a diffuse supervisory system — which we see a lot as we do investigations, we find that comes up over and over again — that the diffuse supervisory systems or these columns where you have separated groups, that doesn't always work out terribly well.”
A third learning opportunity comes from a substantial payment for a major firm. Hodgman brought up J.P. Morgan Chase’s settlements in December with the
“As the industry evolves, as the way we do our business changes, we have to be proactive in keeping up with how we are collecting records, how we are meeting every single one of our regulatory responsibilities,” Hodgman said. “For the commission, these records are sacrosanct. And so to the extent that you have anybody out there using a private email and you find out about it, take care of it now.”
Such widely reported and noticed precedents against a big-name firm should serve as a warning to any other companies suggesting that they’re unaware of an area of compliance risk, Hodgman and Hopper agreed. Attorneys representing firms in matters before FINRA often come to meetings equipped with spreadsheets noting the level of fines in similar cases in an effort to argue that their clients should pay a roughly equal amount, Hopper noted. In fact, she said it raises the question of “Why didn't you get ahead of it?” and “Why didn't you fix it?”
Regardless, she and Hodgman asked audience members from industry firms to contact their teams about cases sooner rather than later in the process.
“I realize the optics of saying this, that enforcement is telling you, ‘No, no, tell us, it's gonna be OK, really, really.’ But what Melissa says is true. What you don't see is the number of matters that we don't bring,” Hopper said. “And there are a lot of matters we don't bring, and it's because firms reach out and talk to us and say, ‘This is why you are wrong,’ or ‘Here's what you're not seeing,’ or ‘Here's what you don't understand.’ I can't guarantee you that if you pick up the phone and call that we will close the matter, but I can tell you that the matter will move forward quickly, that we haven't made any decisions while we're investigating. That is the purpose of the investigation. Also, as Melissa says, we do not believe we are perfect.”
