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Letter to SEC Regarding Compliance and Enforcement

On June 7, John Walsh, a partner at Sutherland Asbill & Brennan, urged SEC Chair Mary Jo White in an open letter to carefully weigh the consequences when enforcement recommendations are brought against compliance professionals. Mr. Walsh, who helped create the SEC’s office of Compliance Inspections and Examinations, noted that the SEC recently has been focusing on bringing enforcement actions against compliance personnel, rather than encouraging high compliance standards in the industry. He believes this focus detracts the SEC efforts to ensure compliance by compliance professionals.

Mr. Walsh’s letter emphasizes four areas of consideration for Ms. White regarding compliance:

  1. Encourage compliance by allowing private sectors compliance professionals to do their jobs in raising business standards rather than holding these professionals to become “regulatory guarantors of their firms.” If there is no evidence that the professional engaged in affirmative misconduct, then the commission should look at appropriate actions rather than rely on enforcement.
  2. Protect the SEC’s regulatory tools by using the variety of tools depending on each situation. The letter states that the SEC has been relying mostly on enforcement rather than the softer regulatory tools – such as a quiet phone call, use of the bully pulpit, and information actions (examinations, no action letters, staff comments, and guidance).  He argues that the commission needs to work on continuing its use of all the regulatory tools and keeping enforcement and examinations separate so that the value of the softer tools is not diminished.
  3. Restore remedies such as requalification, mandatory training programs, policy and procedure improvements, and enhancing disclosures among others. As with the previous advice, the commission should make sure it exercises the appropriate remedy for each case at hand.
  4. Eliminate setting records for regulatory activities. Sustaining these records will cost the SEC’s overall efforts in carrying out its mission of a civil regulator in the industry.