SEC seeks dialogue with the industry

The regulator urges the industry to tell it where it is going wrong with compliance examinations and to be more transparent in turn.

The US Securities and Exchange Commissions' Office of Compliance Inspections and Examinations (OCIE) wants “firms to tell us where we're doing it wrong,” said Kristin Snyder, SEC associate regional director, National Exam Program. “It's important to build a dialogue with us.” 

In response to enforcement referrals, firms should strive to be more transparent and ask questions if needed, she said, adding that OCIE requests for email records are likely become a more regular practice going forward.

Speaking at the Compliance Outreach Program conference this month, Snyder said there could be surprise examinations for larger firms, but more likely the SEC would call ahead, which helps them obtain a lot of the documents they need in advance.

“It's important to make sure that you have your ducks in a row,” Snyder emphasised, and for firms to understand that compliance is a firm-wide undertaking, not just for compliance personnel and the CCO.

Communication between the SEC and the industry is improving, KKR's chief compliance officer Bruce Karpati said.

Ten years ago, the kind of feedback provided at the Outreach conference from regulators and firms was not available, said Karpati, who served as head of the asset management team at the SEC until 2013, having spent more than a decade at the regulator in the OCIE in various roles.

“We can be a source of information for the SEC,” Karpati said. “One of the great things to come out of the Dodd-Frank Act is specialisation. The SEC now has experts in all areas we are investing in.”

KKR was among firms recently pursued by the SEC for misallocating expense fees. The firm paid $30 million in June 2015 to settle SEC charges that it had improperly allocated more than $17 million in expenses.

At the time of the fine, the SEC said examinations of more than 150 firms found problems, including hidden fees and shifting of expenses into fund investors without sufficient disclosure, according to the Wall Street Journal.

“Compliance is more integral today to our organisations and we should make it internal,” Karpati said. “Being well prepared is the best defence. The issue is how you identify, respond and monitor compliance problems. A firm should automate their compliance reporting for the audit trail and incorporate technology so that they can have a record for different reporting purposes.”