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May 28, 2009 |
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Compliance Officers Need To Be Wary, Experts Say |
Compliance officers, who face potential dangers in trying to fulfill their fiduciary duties in the current chaotic market, need to be alert for signs of problems, experts say.
Although some things are unpredictable, compliance officers are obligated to make sure their firms keep clients as well informed as possible to avoid potential issues with the Securities and Exchange Commission, warned Monica L. Parry, counsel in the investment management practice at Morgan Lewis, a law firm in Washington D.C.
Parry was a panelist at a recent webinar sponsored by the Investment Advisors Association for investment advisors registered with the SEC. The discussion centered on re-assessing risk for compliance officers.
Other panelists were in agreement.
“The market crisis points [to] the vulnerability of advisors dealing with third parties they always thought were reliable and shows them that even a Bear Stearns or Lehman Brothers is vulnerable,” said Karen Barr, general counsel for the Investment Advisors Association.
The types of things that can change, and have recently, include the process of obtaining prices for investments such as high-yield municipal bonds. “If nothing is trading you will not get a price from a server or you will get one based on very few trades. If you fail to disclose to clients that the prices may be unreliable, you may be in violation,” Parry said.
“Compliance officers need to talk to traders and see what they are hearing,” she added. An increase in errors or slow responses to phone calls could also indicate future problems, she said.
“A compliance officer does not have a crystal ball, but the SEC emphasizes they should not ignore red flags,” Parry said. “Your client needs to have all the information you have.”
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