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Schapiro: SEC to Focus on Risk

In her address before SIFMA's Compliance and Legal Society Annual Seminar on March 23, 2011, Chairman Mary L. Schapiro outlined a new focus for the agency's Office of Compliance, Inspections and Examinations (OCIE). According to Schpiro OCIE will focus its examinations in part on "engaging with the corporate governance structure of registrants, around enterprise risk and internal controls."    According to Chairman Schapiro, commitment to good governance and risk management must be the foundation of a comprehensive approach to enterprise risk management. Schapiro stressed that firms must prevent siloing and masking of risk, which masks the interdependence between risk categories on an enterprise level. 

This focus on risk by the Commission is vital, because, according to Chairman Schapiro, the way firms have handled the risks they take has undermined investor confidence, and must be addressed:

in the last few years, investors have appeared less confident. And - for much of that time - investment has been migrating out of U.S. equities mutual funds. While a number of factors may have contributed to this migration, one reason may be a perception that the markets themselves contain risks that some investors are not willing to take.

Consequently, Schapiro announced that OCIE will now be alooking into how firms are ensuring that they are assessing, undertaking ,and managing risk effectively. In particular, OCIE will focus on key risk management, support and compliance functions and how management ensures effective oversight of the business units and overall enterprise. OCIE will also take a look at the effectiveness of internal audit and compliance functions, and how these functions assure management and the board that risk, compliance, and financial systems and controls are properly functioning.

The full text of Chairman Schapiro's March 23rd address is avaialble at:  http://sec.gov/news/speech/2011/spch032311mls.htm