Government Accountability Office (“GAO”): SEC Must improve oversight of FINRA
Overview
The SEC tends to educate broker-dealers and advisers by enforcement. Ironically, GAO found the Securities and Exchange Commission (“SEC”) does not have documented policies and procedures to determine which findings and corrective actions to track regarding its oversight of the Financial Industry Regulatory Authority (“FINRA”). Seems the pot has been calling the kettle black.
GAO Analysis
In a recent study GAO, the investigative arm of Congress, indicated that the SEC must take steps to improve its oversight of FINRA.
GAO analyzed documentation from sixty-nine (69) SEC reviews with an emphasis on FINRA’s policies and procedures including execution of such procedures. Further, GAO evaluated additional areas such as timeliness of FINRA’s operations, staffing levels and sufficiency of training and program risk management. In many instances, the SEC review identified deficiencies and FINRA ordinarily proposed corrective action to address such deficiencies.
Currently, the SEC’s performance measures include the following with respect to FINRA oversight:
Create annual investigation and examination oversight plan
Review recurring information from FINRA
Monitor progress and complete inspection and examination plan
Conduct internal meetings with FSIO staff and provide training
Process tips, complaints, and referrals
Meet with other SEC departments periodically to identify risks and priorities
Conduct periodic meetings with FINRA
Inform Division of Examinations leadership weekly about oversight of FINRA
Document examination plan update meetings
Conduct meetings of FSIO senior staff to discuss FSIO risk mitigation efforts
GAO found that the SEC’s oversight of FINRA is generally “task oriented and does not reflect leading practices such as being outcome-oriented and providing useful information for decision-making.”
It was found that “SEC does not have documented policies and procedures for determining which findings and any associated corrective actions to track, or for identifying and communicating the significance of findings from its oversight of FINRA to internal stakeholders including FINRA.”
GAO Recommendation
GAO recommended the SEC establish performance measures for FINRA oversight that “reflect leading practices, and policies and procedures for tracking, identifying, and communicating the significance of examination findings.”
Asgard’s Take
While broker-dealers and advisers are required to develop policies, procedures, and processes to ensure compliance with applicable rules, regulations and laws, the SEC should follow its own requirements to ensure it is in compliance with its stated objectives of investor protection. The SEC’s deficiencies should be a reminder to all that even the Watchdog needs to be monitored.