Thursday, December 4, 2008

SEC Open Letter to CEOs of SEC-Registered Firms

On December 2, 2008, Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations, issued an open letter to leaders of SEC-registered firms, including broker-dealers, investment advisers, investment companies and transfer agents, reminding them of the critical role compliance programs play in firms' continuing obligations under the securities laws.

Your firm's compliance function is critical to assure that your operations comply with the law and rules for industry participation and to ensure that the interests of your customers, clients and shareholders are protected. Moreover, compliance is a vital control function that helps to protect the firm from conduct that could negatively impact the firm's business and its reputation.

As Chairman Cox reminded CCOs in a November 13 address, and IM Director, Buddy Donohue, stressed in an address on October 12, Ms. Richards cautioned firms to avoid the temptation to cut costs by reducing compliance staff and resources.

While many firms are considering reductions and cost-cutting measures, we remind you of your firm's legal obligation to maintain an adequate compliance program reasonably designed to achieve compliance with the law.

. . . .

Firms must be vigilant and proactive in preventing, detecting and correcting problems that could occur. Firms should pay attention to ensuring that their interactions with investors meet high standards, that sales and trading practices are appropriate, that financial, valuation and risk controls are followed, and that all disclosure obligations are met -- as well as meeting all other obligations in conformity with the securities laws.

That SEC officials, from the Chairman to division heads, have stressed this point several times in recent weeks should be taken as an indication that the cuts in firms' compliance staff and resources will be taken very seriously by the Commission's inspection and enforcement staffs. 

The full text of Ms. Richard's letter is available at: