by Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
March 10, 2009
(LAWFUEL) – Good morning and thank you Lori for the kind introduction. I am so pleased to be here with you. It is quite fitting that one of my early public tasks as Chairman of the SEC is to welcome all of you, the stewards of compliance at your firms, to the second CCOutreach National Seminar for Chief Compliance Officers of broker-dealer firms. I’m thrilled also to be here with Rick Ketchum, the incoming Chairman and CEO of FINRA, and to wish him all the best as he takes the helm at FINRA.
In a most fundamental way, your role as chief compliance officers, like that of the SEC, is critical to restoring confidence in the nation’s securities markets. In the few weeks that I’ve been at the SEC, we have taken active steps to help restore that confidence. Among other things, the Enforcement Division has been uncuffed; there is a new initiative to improve the processing of whistleblower tips; and a roundtable has been announced to examine the important topic of credit rating agency oversight. But there is so much more that can be done and that’s where all of you are critical.
You might think that, in light of all that’s happening in the markets right now, fewer people would have made time in their schedules for this event. But the fact that we have a large crowd here, and have hundreds more Chief Compliance Officers and their staff listening via Webcast, speaks volumes. It says that you think — as I do — that strong compliance is even more essential when times are tough in the industry and the economy as a whole.
As Chief Compliance Officers, your role is an extremely challenging one. While our oversight system needs strong and tough regulators — no regulator can be everywhere, at every moment, and at every interaction between investors and securities firms. But that’s where you are — you and the compliance programs you run, are on the spot every day to help make sure that customers are protected. Regulators can write strong rules, conduct detailed examinations, and bring timely enforcement cases — and I commit to you that we will fulfill these regulatory responsibilities. But it’s you, in the firms and on the ground, who have the first-line obligation to help assure that your firms and your fellow employees are meeting their obligations to investors.
Our markets cannot function effectively without the trust of investors. But that trust has been shaken by the market events of the last year. The nest eggs of millions of American investors are exposed to the securities markets. And in many cases, those savings have declined significantly. In fact, some investors have lost such a substantial portion of their savings that they may be reluctant to trust the markets with their money again. It is essential, therefore, that investors’ trust in the securities markets not be further rattled by unfair practices or misdeeds. That is why your compliance role is so critical, and provides such an important benefit to America’s investors and our securities markets.
Reforms can — and will — be imposed by the SEC to try to repair the damage that has been done to investor confidence and to assure that investors are protected when they place their trust in financial services firms and the markets. But it is broker-dealers and other financial services firms themselves that must show investors that regulation exists to complement what firms are already doing to protect and serve the interests of investors. Regulation is not the sole check on our financial markets.
At a time when investor confidence may be at an all-time low, the most effective way to raise that confidence, and invigorate our capital markets, is for there to be a “New Era of Responsibility” on Wall Street. Financial services firms need to lead the charge in fixing the problems that exist. As a CCO, you play a leading role in establishing the New Era of Responsibility — you should be empowered to speak out and let it be known that Compliance and Supervision are as important to a successful firm as the Sales and Trading desks. I urge you — as I have done for the past 20 years — to use your positions to build the culture of compliance throughout your firms.
What would this “New Era” look like? For each new challenge, a proactive and comprehensive solution must be formulated. Today, the panelists will be discussing some of their challenges and the solutions that have worked for them. Today’s panels will focus on four important topics:
First, The Challenge of Regulatory and Compliance Issues in the Current Economic Environment. Current market conditions have created challenges that firms have not experienced before, and placed greater stress on operational units and on compliance programs. In some cases, you are being asked to do more with less — you have to tighten controls while your budget is being reduced. The New Era could include greater intra-firm coordination to ensure more precise and coordinated internal controls and risk management systems, including additional stress testing, expanded scenario analyses, and strong custody and asset verification controls. The New Era might also include broader, clearer disclosures to investors, stronger policies and procedures, and streamlined systems.
Second, The Challenge of Information Protection and Privacy. Evolving technology creates unique challenges. Every week there are news reports about new methods that hackers are implementing to access confidential and sensitive information. You will hear today how firms have bolstered their information protection and privacy protocols — to address administrative, technical and physical safeguards for both customer and firm confidential information. All of us will have to work harder and smarter in the New Era to ensure that customer and firm information remains safe.
Third, The Challenge of Non-Traditional Investment Products. As securities firms bring new, non-traditional products to the market, they must ensure that the energy put into product development is matched by a focus on ensuring that the product is understandable, understood, and suitable for those to whom it is sold. In the New Era, there will be better disclosures to investors, more careful risk assessment of complex products before they go to market, more training for firm personnel, and more attention paid to the suitability of products.
Fourth, The Challenge of Enterprise-Wide Supervision. Given the number and complexity of financial firm mergers and consolidations in the past year, developing and enforcing compliance programs across a large and diverse organization has become even more challenging. How does a CCO ensure that the staff of each business unit is adequately trained in compliance responsibilities? How does a CCO help to identify and manage the conflicts that may arise between business units? In the New Era, strong controls in conflicts management, information barriers and broader, stronger (enterprise-wide) supervisory systems will be essential.
These are some of the challenges that financial firms face, and that CCOs and regulators from the SEC and FINRA will be discussing today. Let me emphasize that — particularly now, at this time of both challenge and change — it’s vital that firms and their regulators have open lines of communication. I want you to know that we’re committed to continuing a meaningful dialogue with you — and that’s why we’re here today at this National Seminar. I’m also pleased to announce that the SEC and FINRA will hold five regional CCOutreach BD seminars throughout the country from May through July. Like today’s National Seminar, they will provide an important forum for firms and regulators to discuss key compliance issues and challenges in the current environment.
The industry must rise to the challenges of this time. Clearly, as CCOs, you play an important role, as part of the larger fabric of your firms. I hope that today’s CCOutreach National Seminar will help you think about what the “New Era of Responsibility” will look like, and the role that you and your firms will take to help make it a reality.
Thank you for joining us today, and thank you for your continued commitment to serving America’s investors.