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A 2013 speech by Stephen L. Cohen, Associate Director of Enforcement of the SEC, highlighted the importance of corporate compliance and ethics. Importantly, the speech set out to explain how a good, effective compliance program can often help a firm mitigate their risk ranking with the SEC’s National Examination Program. So in other words, being able to evidence the tone at the top and the culture of compliance within your organization can help keep the regulators at bay longer between routine visits.
But don’t take our word for it, listen to what Cohen said:
“First, there is no doubt in my mind that a strong compliance and ethics program not only provides direct economic benefits to your company but will also allow you to reap significant credit should you ever deal with us or our law enforcement colleagues. The alternative may be squaring off against our vigorous enforcement program…. More broadly, in the firms the SEC regulates, our National Examination Program staff meets with senior leaders, boards and compliance personnel, to assess the culture of compliance and ethics in the organization. These assessments can factor into the level of risk the staff ascribes to a firm, which can affect how frequently they are examined. And, they do not hesitate to emphasize the importance of supporting these functions through enforcement if necessary.”
So what are the consequences for not having a robust compliance program? As Associate Director Cohen explains:
“Working closely with our National Exam Program and colleagues in our Investment Management Division, Enforcement’s Asset Management Unit is coordinating efforts to identify and bring cases against registered investment advisers who lack effective compliance programs and procedures. Effective compliance programs and personnel are instrumental to protecting the investing public from investment adviser fraud. To date, the Commission has brought six actions arising out of this initiative, which is particularly timely because hundreds of private fund advisers have recently registered with the Commission under Dodd Frank. And there are more in the pipeline.”
No one wants to find themselves in the crosshairs of enforcement so it is important to not just implement a compliance program, but to have it permeate the entire organization.
“A strong ethical culture flows from good governance and requires leaders to promote integrity and ethical values in decision-making across the organization,” Cohen said. “This entails asking not just ‘can we do this,’ but ‘should we do this?’”
A culture of compliance and ethics can and should be measured from interaction with leadership across the organization as well as from front line employees who are often a revealing barometer of what the culture and expectations really are.”
And remember that compliance is not a ‘set-it-and-forget-it’ type function. Rather, it has to be an active, continuous process, constantly striving to be better and more enhanced. As the Associate Director points out:
“…your organization must proactively keep pace with developments and leading practices as part of a commitment to a culture of ongoing improvement. Business models, rules, ethical standards and compliance tools are continually evolving. Yet, recent studies show that compliance officers may not be focusing on emerging risk areas such as social media and privacy issues. Leading organizations ensure that they stay in front of these changes through a process of ongoing improvement that leverages new technology and best practices.”
So, are you on the front lines looking out for the next compliance enemy, or simply getting lost in the trenches?
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