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News May 8, 2006 Issue

Cox Describes OCIE Reforms

Chairman Christopher Cox has confirmed that OCIE will notify each of the five SEC Commissioners before launching any new sweep examinations (see IM Insight, March 6, 2006).

During his May 3 testimony before the House Financial Services committee, Cox additionally announced that OCIE will inform firms about the status of their examinations after 120 days, and will provide a formal notification when their examination has been completed. In addition, Cox said that the SEC had put checks in place during the pre-examination process to avoid duplicative exams.

Cox’s statements came in response to questions by Rep. Vito Fossella (R-NY), who sits on the committee. Fossella told Cox that he had heard that some of the reforms in his H.R. 4618, The Compliance, Inspections and Examinations Restructuring Act, already had been put into place at the SEC. In response, Cox described the changes. Notably, of course, the SEC’s reforms to date do not include putting examiners back into the operating divisions or appointing an examination ombudsman, as contemplated by Fossella’s bill.

Fossella then asked Cox whether additional changes might be put into place down the road. Cox responded that he has authority to implement organizational charges and that he and his staff will continue to review options.

The next day, Fossella issued a press release praising Cox’s statements. "Chairman Cox’s reforms will help improve efficiency and accountability of inspections and examinations and enhance investor protections," Fossella said. "Leaving companies in the dark on the status of investigations or when they are completed only served to increase capital costs, reduce efficiency and impair capital formation with no benefit to the investor. The goal is to improve compliance, not make companies fearful of asking questions or working with the SEC on issues they are facing. This ‘culture of fear’ can be eliminated by enacting additional common sense reforms that increase efficiency, accountability and investor protection."

Fossella called the changes announced by Cox a "positive first step" in reforming the SEC’s examination process. "My legislation was intended to highlight the shortcomings of OCIE and start a dialogue within the industry on the need for reform," he said. "We have succeeded in spurring the SEC to take action, and I look forward to working with all parties to further improve investor protections in this area."

Fossella spokesperson Craig Donner confirmed that his office is "still working towards a hearing" on the bill in an effort to continue to "shine a light" on OCIE.

And yes, abolishing OCIE and returning examiners to the operating divisions is still a goal.

"That’s what we are still working towards," said Donner. "But," he added, "we are open to additional reforms by the SEC, like those that were announced yesterday."