Skip to main content
Top Button
COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment Advisers COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment Advisers

COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment Advisers

On August 12, 2020, the Office of Compliance Inspections and Examinations ("OCIE") of the Securities and Exchange Commission ("SEC") published a Risk Alert detailing a variety of COVID-19 specific risks and considerations for broker-dealers and investment advisers. OCIE has remained operational through the ongoing COVID-19 global pandemic and has accordingly gained insight into specific challenges for broker-dealers and investment advisers that have arisen. OCIE's observations and recommendations from working with SEC registrants during the pandemic fall into six categories:
  1. Protection of Investors' Assets
  2. Supervision of Personnel
  3. Practices Relating to Fees, Expenses and Financial Transactions
  4. Investment Fraud
  5. Business Continuity
  6. Protection of Investor and Other Sensitive Information
Protection of Investors' Assets

As OCIE reminds firms in the Risk Alert, firms have a responsibility to ensure the safety of investors' assets and to guard against theft, loss and misappropriation. OCIE has noted that some firms have modified their standard operating procedures for collecting and processing investor checks and transfer requests. OCIE reminds firms that procedures should continue to follow mandated guidance, and where appropriate, firms should update written supervisory procedures to reflect current firm operations. OCIE also notes that due to updated rules regarding disbursement from retirement accounts for those affected by COVID-19, firms should ensure their procedures reflect current operations and are in line with applicable guidance.

Supervision of Personnel

As many firms have migrated to fully or mostly remote operations during the COVID-19 pandemic, expected challenges have arisen in supervising firm personnel. Firm's obligations to supervise personnel have not diminished when changing to remote operations. Firms should modify written supervisory procedures to ensure they reflect current operations while being sufficiently robust to not create compliance issues for firms.

Fees, Expenses and Financial Transactions

In light of the current economic environment, OCIE believes some firms and firm personnel may feel pressure to generate additional revenue. Risk of conflicts or unethical fee generation may have increased accordingly. OCIE suggests that firms ensure monitoring of individual representatives is sufficient in light of this increased risk and that transactions be reviewed to mitigate risk sufficiently.

Investment Fraud

OCIE suggests generally that times of financial uncertainty can lead to a higher risk of fraud and/or fraudulent offerings. OCIE suggests that firms review investment offering and conduct due diligence to ensure offerings meet the firms required standards. Any suspected fraud should be reported to the SEC.

Business Continuity

Many firms have discovered, or are discovering, that their required business continuity plans are insufficient for the current remote work situation. OCIE encourages firms to review and update their business continuity plans to confirm the plans accomplish their intended purpose now that firms have actual experience operating in a remote environment (OCIE suggest firms update their written supervisory procedures accordingly as well).

Protection of Sensitive Information

Firms have significantly increased their reliance on technology and video conferencing programs to maintain operations during the COVID-19 pandemic. These technologies may significantly increase the risk that sensitive financial information and personally identifiable information is accessible by third-parties. Firms are encouraged to review their written supervisory procedures, technology platforms and online encryption technologies used to store client personal information.

OCIE's published Risk Alert can be viewed here.

For more information, contact Matt Fornshell, Erik Hansen or another member of our Securities Litigation and Regulation Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
View Full Site View Mobile Optimized