According to Carlo di Florio, Director of the Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”), the SEC is taking a hard look at senior management at brokerage and advisory firms to gauge “the tone at the top.”
Specifically, Mr. di Florio stated “the SEC wants to know that enough resources have been allocated to compliance functions.” Mr. di Florio continued by stating “we’ve begun to monitor head count and want to understand why [attrition among risk managers] is happening. Head counts are key indicators. If we see them go down while business is heating up in certain ways, that means a firm is cutting in the wrong way.”
In addition, Mr. di Florio stated “members of the SEC’s exam and enforcement staffs are now working side by side to identify problems and bring cases. The way we used to do exams was [to] write them up, then throw it over the fence to enforcement. They were two distinct processes… Now enforcement and exam personnel are ‘locking arms’ in developing cases,” he said.
Finally, commenting on the matter, John Walsh, a partner a Sutherland Asbill & Brennan LLP, and a former official in the OCIE, said this is a fairly new development. Specifically, Mr. Walsh said “the creation of the asset management unit is a fundamental change in the way the SEC functions.” The SEC has a “fairly substantial team of attorneys that focuses on [asset management] issues. … It really does make a difference if people on the enforcement side understand the space, and understand the regulatory regime.”