On Monday, September 12, 2016, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) announced that a “Supervision Initiative” will take place across the country.
OCIE staff will conduct focused RIA examinations of firms employing or contracting with supervised persons, who have a disciplinary history. OCIE plans to evaluate the effectiveness of RIA compliance programs, supervisory oversight practices, and disclosures to clients and prospective clients, concentrating on the potential risk disclosures arising from financial arrangements initiated by supervised persons with a disciplinary history. OCIE’s justification for this targeted examination is its belief that firms, who hire those with disciplinary histories, are more likely to have future disciplinary issues arising from these individuals’ conduct.
Frankly, this announcement should come as no surprise to anyone. The SEC has made it abundantly clear over the years it does not like people who have disciplinary histories working for regulated entities. However, the SEC always seems to fail to consider that, for a significant part of the securities industry, disciplinary histories have become the norm given the ease where people may make complaints against registered persons, and how expensive and difficult the regulators have made fighting unfounded allegations. Numerous registered persons have had to make the difficult choice of agreeing to resolve disciplinary charges simply because the price of fighting them would be too great.
Conveniently, the SEC ignores this fact and instead will seek to further stigmatize many hard working and honest members of the securities community.