In a recent speech, Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), outlined planned changes to the SEC’s examination process that included a desire to increase OCIE’s interactions with senior management and boards of directors.
The SEC continues to review and revise its examination process and priorities with the goal of fixing the problems that allowed the fraudulent activities of Bernie Madoff and other registrants to go undetected. Director di Florio’s speech touched on moving from a regionalized system of examination to a more centralized and disciplined operation overseen by a new chief operating officer for the examination program.
Perhaps more newsworthy was di Florio’s discussion of the focus of examiners. Examiners will be looking for key elements such as the level of engagement of senior management in compliance and risk processes, the culture of compliance created by top management and whether the board of directors is engaged and focused on risk management. To this end, di Florio discussed how examiners will not confine their interactions to compliance personnel but rather will seek direct engagement and interaction with senior management and boards of directors.
SEC registrants should consider presenting thoroughly articulated processes and results specific to the compliance program and risk management to their most senior personnel and engage boards with in-depth reviews of compliance and risk management processes to ensure that everyone is prepared for future SEC examinations.