Guide to SEC Use of Independent Compliance Consultants

Regulators rely nearly every day on independent consultants to monitor member firms entangled in enforcement cases. Leveraging independent consultants for oversight of a firm improves efficiency of regulatory organizations by freeing up auditors to review more cases. The consultant may be required to handle any number of tasks in order to fulfill remediation.  Services of the consultant may be required for a set number of months or years. Proactive firms reach out to consultants while they’re in preliminary stages of an enforcement case as a show of good-faith effort in remediation, and to prepare policy and procedure solutions that they plan to present to the enforcement agency.

Rules and RegulationsFrequent ways Independent Consultants are used to resolve enforcement and compliance issues

Below are examples of common requests by regulators when calling for an independent consultant to provide oversight in the remediation terms:

  • The Independent Consultant will be retained for a set number of days or months
  • The Independent Consultant is approved and acceptable to the staff of the Commission
  • The respondent member firm bears the entire cost of the independent consultant, including compensation and expenses.
  • The Commission will require an engagement letter from the Independent Consultant detailing duties and responsibilities as required by the enforcement order.
  • A description of the independent consultants’ duties must be outlined including; review written policies and procedures; make recommendations concerning policies and procedures; assure the compliance program is effective as well as supervisory procedures and policies and procedure manuals; ensure the respondent is complying with the specified enforcement remedies.
  • Usually there is a mandate requiring the respondent and Independent Consultant work together in good faith.  They must attempt to reconcile disagreements and where the two parties cannot come to an agreement, the respondent may often be required to revert to the original recommendation made by the independent consultant.
  • The consultant engagement will specify the independent consultants obligation to the enforcement staff such as; issue a report and submit a copy of the report to the commission describing the review performed, conclusions reached, and recommendations.
  • Typically there will be a specified amount of time, such as 30 days, in which the respondent shall adopt recommendations contained in the independent consultant report. If the respondent disagrees with proposed recommendations is they may communicate in writing to the Commission to request a review or suggest an alternative policy or procedure.
  • The respondent in an enforcement case is of course required to cooperate fully with the independent consultant and provide access to files, books, records, and personnel.
  • An affidavit stating recommendations have been implemented is often required, and usually subject to a deadline such as 180 days. Also a provision is made for recommendations that have not been implemented and an explanation.
  • An independence agreement is generally required where the respondent and independent consultant may not otherwise be affiliated in any way. They are often barred from entering into an employment agreement, audit engagement, or otherwise consulting or attorney relationship with each other in any capacity for a set time; including agreements with affiliated member firms, directors, employees, or agents.
  • While the above are common requirements when the Commission uses Independent Consultants in the remediation process, there may be many other terms deemed appropriate for your enforcement situation. Other terms may include; private meetings with staff, requirements of documents to be provided to the commission, full access to all records requested by the consultant.

Does your FINRA, MSRB, or SEC member firm need assistance navigating remediation for an enforcement action or exam? Our team of professionals are highly experienced with regulatory rules. We’ve developed policy and procedure manuals for Broker-dealers, RIAs, Municipal brokers, Private fund managers, and more. We develop vertically integrated compliance solutions for firms that encompass business planning, operations, trading, and registration. We provide –  

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