Carlo di Florio, Director, Office of Compliance Inspections and Examinations (OCIE), introduced in late December the new and improved SEC national examination program.  Before that, Mr. di Florio told the SIFMA C&L audience about OCIE's new specialized units for 5-high priority areas:   (i) asset mgmt;  (ii) market abuse;  (iii) structured and new products;  (iv) foreign corrupt practices;  and  (v) municipal securities.

    Changes to the SEC’s Examination Program for Broker Dealers.   Key changes are mostly due to the Dodd-Frank Act - for BD's, IAs, and others. For Broker-Dealers, there's a new focus on new products, variable and municipal securities, and the following related concerns:  (ii) valuation;  (iii) controls in place for valuation;  (iv) sales practices around those products, including whether customers fully understand the products, and (v) steps management is taking to ensure compliance. 

    Changes to the SEC’s Examination Program for Investment Advisers.   OCIE's focused on, among other things, (i) portfolio mgmt;  (ii) asset verification;  (iii) variations on performance.  Each is prime for 'target exams'.

    Other Factors Impacting the National Examination Program. 

• SEC is switching jurisdiction over investment advisers with assets <$100mn to state regulators, from the SEC.
• SEC's is expanding its jurisdiction by requiring most advisers of private funds to register and be subject to examination. 
• SEC also is assuming new authority for major securities-based swaps participants and securities-based swaps dealers, execution facilities, clearing agencies and data repositories, as well as recent rule proposals under the Dodd-Frank provisions on securities-based swaps.
• For regulation of clearing agencies designated as systemically significant, the SEC's significant new oversight authority will involve a statutorily-required annual exam of these agencies.
• For whistleblower provisions of Dodd-Frank the SEC has noted that the new program was not intended to encourage employees to bypass internal compliance and reporting processes.  The SEC seeks comments on how the SEC can best ensure that companies continue to maintain strong internal processes designed to identify and address potential issues.

       Other Steps Being Taken.

• A national exam committee and steering committees will to help develop a more efficient and consistent exam program.  
• For the first time, OCIE has developed a standard manual detailing how to properly conduct an exam. 
• The SEC was using one technology tool to conduct exams, which likely would improve the consistency of exams. 
• OCIE's new risk-based exams will move the Agency towards limiting and stopping routine cycle exams - so as to focus exams on particular risk issues.
• The SEC recruited new specialists in certain key areas to facilititate risk assessment and technology. 

The SEC remains focused on: (i) understanding risk and how such risk is managed; (ii) the way in which organizations structure control functions to identify and address issues; and (iii) how internal audit is structured to provide for independence and assurance with regard to risk management and incentives linked to risk. The SEC also is focusing on the role corporate boards play, re: the oversight of risk and compliance and the boards’ interaction with risk and compliance departments.

 For further details, go to:  [SEC Staff Speeches, 12/21/10]