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SEC OCIE Director Urges Firms to Establish and Maintain Strong Compliance Programs

Christian.Larson@cwt.com's picture
Commentary by Christian Larson

SEC Office of Compliance Inspections and Examinations ("OCIE") Director Peter Driscoll urged firms to establish and maintain strong compliance programs that address (i) anti-money laundering ("AML"), (ii) microcap securities, (iii) paying agents and (iv) cybersecurity.

Mr. Driscoll advised firms not to wait until an OCIE examination to identify and address compliance deficiencies. Specifically, Mr. Driscoll advised firms to:

  • conduct independent tests of their AML programs to identify weaknesses;

  • educate themselves on FinCEN's customer due diligence rule and ensure their policies are compliant;

  • scrutinize indicators of manipulation, fraud and inaccurate issuer information when publishing quotations of over-the-counter (OTC) securities in connection with Rule 15c2-11;

  • ensure they are adhering to the locate requirements of Regulation SHO ("Regulation of Short Sales");

  • review their policies to ensure compliance with the lost securityholder rule that requires transfer agents and certain broker-dealers to search for and send notices to lost securityholders;

  • examine practices to ensure that they follow safeguarding and customer protection rules; and

  • update cybersecurity and technology controls to better protect customer information.

Commentary

Director Driscoll's comments focus on a subset of the SEC's 2019 examination priorities. Although the SEC also named AML as an examination priority in 2016, 2017, and 2018, the Commission's enforcement reports for those years made no mention of money laundering. It remains to be seen whether the SEC will focus more enforcement attention on AML in 2019. But, if it does, the entry into force of the CDD Rule (also known as the "beneficial ownership rule") may well be the reason.

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