OCIE Director on Conflicts of Interest and Risk Governance (with Lofchie Comment)
According to OCIE Director Carlo V. di Florio, conflicts of interest are at the heart of many cases that the Commission brings on a routine basis. The SEC Director of the Office of Compliance Inspections and Examinations delivered a speech in which he explained the term "conflicts of interest," the reason conflicts of interest are of particular concern, and what the SEC and other regulators are currently focusing on as to conflicts.
Director di Florio went on to discuss the role of risk management and risk controls within firms in identifying and managing conflicts of interest, especially the significance of managing conflicts of interest for the criteria laid out in SEC and FINRA compliance program rules and the U.S. Federal Sentencing Guidelines on effective compliance and ethics programs. Some of the conflicts of interest that are high priority for the SEC, according to di Florio, include: (i) compensation-related conflicts and incentives; (ii) portfolio management-related conflicts; (iii) affiliations between investment advisers and broker-dealers; (iv) valuation; (v) transfer agent conflicts; and (vi) exchange conflicts.
Lofchie Comment: The speech serves as a significant reminder to senior business and compliance professionals as to the likely source of major problems. That said, the speech does not attempt to break new ground; in fact, the author rightly cites to former SEC Director of Enforcement, Steven Cutler, for focusing on conflicts of interest starting back in 2003. Even if there is nothing entirely new, when the Director of OCIE says to focus on conflicts, that is likely good advice to follow. In some ways, I think the real question is not about the regulated firms take the advice, but whether OCIE (and the regulators) can in fact take their own advice. If the regulators will focus on the big picture issues, that to me implies they are giving less attention or weight to technical non-substantive rule violations that are simpler to pounce upon but that are of less significance. For the regulators, it's easier said than done.
Click here to view speech in full (links externally to SEC website).