Now that you’ve seen what ACA Insight has to offer, don’t be without it. Subscribe now!

The weekly news source for investment management legal and compliance professionals

Current subscribers - please log in to the website in the upper right-hand corner

News January 2, 2006 Issue

Details Emerge on OCIE Bill

As it turns out, Rep. Vito Fossella (R-NY) did go ahead and introduce legislation to dissolve OCIE. The bill, H.R. 4618, The Inspections and Examinations Reorganization Act, was formally introduced December 17.

The legislation would abolish OCIE and redistribute its inspections and examinations authority to the SECís operating divisions. Moreover, it would require the SEC staff to obtain Commission approval before launching sweep exams. In addition, the bill would require examiners to touch base, in writing, with inspected firms at least once every 120 days to inform them of the status of their inspection. Firms would have to be notified within 10 days of an examís completion.

Interestingly, the bill would require the SEC to appoint an "examination ombudsman." Among other things, the ombudsman would "ensure [that] safeguards exist to encourage" advisers and other registrants "to present questions to the Commission regarding compliance with the securities laws." The ombudsman would be required to "maintain privilege of confidential communications between such persons and the Ombudsman" ó unless the head of the SECís Division of Enforcement formally recommends that the SEC seek an injunction against the adviser, fund, or broker. In that case, the ombudsman would be required to reveal the confidential communications.

One former examiner dismissed the substantive merits of the legislation. "If anything happens, itís going to be all political," he said. In his view, OCIE is just fine the way it is and should not be reintegrated within the Divisions of Market Regulation and Investment Management. "That puts us back with the lawyers," he said. "In many cases, they donít understand how firms operate." Attorneys, he explained, often focus on legal theory, to the detriment of practical considerations. "A lot of times, something is legally sound but is not practical." Having a stand-alone OCIE, he said, allows examiners to focus on the real-world aspects of SEC regulations.

He said that many former examiners believe that putting SEC examiners in a separate office "was a good move." There is a "synergy in putting all the examiners together" and "removing them from IM and Market Reg," he said. He also pointed to the concept of checks and balances. "Thereís a reason why the judicial, legislative, and executive branches are separate," he said. "Maybe thatís a reason for IM and Market Reg and examiners to be separate, too."

In his view, some former SEC lawyers now in the industry have become "anti-SEC" and have taken the view that OCIE has "kind of run wild." While he acknowledged the validity of concerns about multiple, simultaneous regional sweeps, he pointed out that OCIE seems to have responded to those concerns. "Iíve heard people say itís better this year than it was in í04," he said.