Firms that are willing to do internal compliance reviews and mitigate problems they uncover now will hopefully be better able to reduce their compliance exposure, post-Covid, she said.
“I would hope that the SEC will be reasonable with firms that make a good faith effort to adapt its procedures in light of some of the challenges presented by the pandemic. I do, however, expect that enforcement will focus on firms whose conduct or lack of adequate procedures resulted in investor or client harm."
The agency used the alert to make clear that the challenges of a pandemic-induced virtual workplace will not be a good defense against compliance failures. These are some of the problems the SEC said firms need to avoid:
• Supervisors not having the same level of oversight and interaction with supervised persons when they are working remotely.
• Supervised persons making securities recommendations in market sectors that have experienced greater volatility or may have heightened risks for fraud.
• Limited on-site due diligence reviews and other resource constraints associated with reviewing of third-party managers, investments and portfolio holding companies.
• Communications or transactions occurring outside of the firms’ systems due to personnel working from remote locations and using personal devices.
Many issues—such as firms’ not picking up client checks in the mail in a timely fashion—have been exacerbated by the new virtual, remote workplace, the SEC said.
What other compliance areas will be most troubling for firms, especially in the retail advice sector?
“While this is not specific to the retail sector, the protection of client and other sensitive information is an area where asset management firms ... have to constantly evolve to ensure that relevant procedures and systems are effective in light of the threat of cyber-attacks, hacking or other forms of identity theft,” Lombardo said.
Protecting clients’ financial information “is always a concern, but perhaps this concern is heightened in the current working environment where you have a disbursed workforce accessing a firm’s systems fully remotely,” she added.