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Conflicts of Interest and Risk Governance

Wednesday, November 7, 2012

At the recent National Society of Compliance Professionals conference October 22, 2012, Carlo di Florio, the SEC’s Director of the Office of Compliance Inspections (“OCIE”) and Examinations, instructed broker-dealers and advisers to increase their efforts to prevent conflicts of interest. The National Exam Program (“NEP”) has adopted a risk-based strategy to determine who to examine and they have identified conflicts of interest as a key area for their risk analysis.

Mr. di Florio defined a conflict of interest to include favoring the firm over a client, one client over another client, or employees over their firm. He also stressed the importance of practices that “may be technically within the letter of the law, but are not in keeping with the spirit of the law.” Mr. di Florio discussed the high-priority conflicts that the OCIE will scrutinize: sales practices, outside business activities, mutual fund wrap programs, side-by-side portfolio management, affiliations between advisers and broker-dealers, and valuation practices.

Mr. di Florio stated that firms should create a “cross-functional leadership team to identify and understand all conflicts within their business model.” In addition, firms should create and implement specific conflicts of interest policies and procedures which include prohibited practices, training, monitoring, and discipline. Finally, Mr. di Florio assigned responsibility to the firm’s business line as “the first line of defense” with additional monitoring and testing responsibilities designated to compliance and internal audit.

Firms need to take this seriously and create and implement a specific conflicts of interest policy and procedure to include the elements outlined by Mr. di Florio in his speech. Click here to download the full speech.

Red Oak Compliance Solutions is able to help you design and implement a robust conflicts of interest policy.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes. 

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