The early days of the coronavirus pandemic presented a unique challenge for financial firms and professionals, requiring rapid transition to a fully remote work environment while guarding against an onslaught of compliance risks caused by the pandemic and related market events.
Now that the initial pandemic response has settled into an ongoing state of operations, the SEC’s Office of Compliance Inspections and Examinations (OCIE) has alerted industry members—specifically registered broker-dealers and investment advisers—of some key observations and recommendations regarding these pandemic-related risks.
OCIE’s alert identifies several thematic concerns, consisting mainly of ordinary-course challenges that have been exacerbated by the remote-work environment and pandemic-related market volatility.
Safeguarding Investor Assets and Combating Financial Stressors
The paramount regulatory concern for investment firms and professionals is protecting investor assets. OCIE stresses the need to review procedures for handling investor checks and making related disclosures to investors about any potential delays, especially if the pandemic has disrupted a firm’s mail processing.
OCIE also cautions that firms should be attentive to any unusual or unscheduled withdrawal activity and consider implementing additional safeguards around identity validation and alternative, trusted contacts for vulnerable classes of investors, including the elderly.
Beyond protecting investor assets, OCIE also reminds firms of the need to control against improper incentives created by decreased economic activity, including professionals making unnecessary recommendations for account and product transfers, and seeking loans from investors.
OCIE also recommends that firms enhance their due diligence of potentially fraudulent offerings, including those touting pandemic-related products or offerings.