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News October 23, 2006 Issue

Richards Lists Issues of Exam Focus

At last week’s NSCP conference, OCIE director Lori Richards offered a non-inclusive list of issues that examiners currently are concerned about. "[T]hese are areas that I think you should be particularly attuned to at the moment," she said.

  • Insider trading and front-running. This, said Richards, includes "sharing non-public corporate or order information with others, and also receiving that information and using that information to trade." She urged advisers and other firms to address this area in risk assessments and in investigation and monitoring efforts.
  • What are you using your clients' money for? "Given all of the ‘secret payments’ cases that we've seen, it would make sense for you to look at fund expenses and the use of advisory clients’ monies, and be sure that they are appropriate and that the money is used as intended and disclosed." She urged firms to be alert to payments to affiliates and payments intended to increase assets under management "under the guise of something else." 
  • Supervision. Is your firm adequately supervising employees? Situations to watch include branch offices, trading desks, big producers, and solicitors. 
  • Trading issues. Here, areas of focus include best execution in debt and equity securities, payments for order flow, soft dollars and use of brokerage, Reg SHO, and mark-ups.
  • Controls to prevent theft and misrepresentations. Examiners will look at controls over the creation and sending of account statements, and account and position valuations, as well as identity theft issues. 

Other areas mentioned by Richards included AML compliance programs and issues related to senior citizens.