At ACA, we understand that preparation is key, especially when facing the complexities of SEC examinations. Our new AdviSEColumn provides insights from former SEC examiners and co-heads of ACA’s SEC Mock Exams team, Robert Baker and Michele Foldenauer, to provide you with perspective into the regulator’s exam process.
Dear ACA, how can firms build a culture of compliance that goes beyond just checking boxes?
Robert Baker: A culture of compliance is the hardest and most important thing to show in an examination. When we do mock exams, we workshop the opening day deck and its presentation as a great opportunity to show a culture of compliance. Most CCOs could deliver the entire deck on their own, but we usually recommend a firm start the presentation with a long-tenured person on the business side to explain the history of the firm, its investment strategy, and clients. The same person can transition the presentation over to the compliance team by emphasizing the respect the business side of the firm has for compliance staff and rules.
Beyond the opening presentation, the best sign of a culture of compliance is frequent interaction between compliance staff and others at the firm, especially evident when portfolio managers, analysts, traders, and others often reach out to compliance or legal staff for guidance. When examiners see logs of compliance interactions and compliance attendance and involvement in portfolio management meetings or trading decisions, then they see strong indications of a culture of compliance. It is also important to heed the advice of compliance when they are involved in these discussions or decisions.
To give just one example, certifications of compliance with policies related to no trading on material non-public information (MNPI) is a good step, but certifications alone do not satisfy most examiners’ concerns. In contrast, if a firm maintains a log of questions to compliance about potential MNPI or a log of compliance chaperoning (or otherwise reviewing) communications involving potential receipt of MNPI, then the firm is demonstrating its culture of compliance.
Michele Foldenauer: Building a culture of compliance requires setting the tone at the top within the organization. Make compliance an integral part of daily operations and communication with visible support from senior leadership. Compliance staff should be viewed as collaborative partners in the business rather than the “police” team. Sufficient resources along with external support can alleviate some of this burden.
Additional Insights are Available
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