SEC Regional Directors Roundtable Illuminates Post-COVID Expectations for the Industry

In an intimate roundtable co-presented by the Securities and Exchange Commission (SEC) Historical Society and law firm Morgan Lewis, members of three SEC division offices discussed changes that have occurred at the commission as a result of COVID-19. The conversation was well moderated and at times very light hearted, providing a small glimpse into how the SEC often runs, similar to commercial, national enterprises. Whereas the bulk of the conversation dealt primarily with how the Commission adapted culturally to the pandemic, two key substantive themes stood out.

Operational Efficiency

First and foremost, the SEC has not missed a beat in terms of operational efficiency. The Commission has long utilized work from home capabilities with the quarantine protocols simply an expansion on this preexisting practice. Each panelist echoed similar praise for their respective staff, highlighting that investigations and enforcement actions in no way suffered due to the sudden mass exodus from the brick and mortar offices. In fact, some types of cases saw an increase, such as insider trading and COVID-related malfeasance. It will be interesting to see if this sentiment is validated when the OCIE (and other commission) numbers are released.

Technology

Second, technology has taken front and center stage. Whereas members of the fintech, suptech, and alphatech industries have known the importance of the financial technological evolution for some time, it is a far different matter when high ranking members (of arguably the world’s most powerful financial services regulator) highlight the same notion. Moving to a work from home environment eliminates the possibility of many traditional investigative measures, such as in-person inspections, informal in-person meetings, and live depositions. In lieu of those tools the Commission has been forced to look inward to enhance its investigative process. As a result, greater emphasis is being placed on data analytics than perhaps ever before in the Commission’s 86 year history.

Oversight

The industry would do well to take notice of these themes. In times of great upheaval and volatility, such as that we are collectively experiencing, the need for regulatory watchdogs and compliance is exponentially greater. Bad actors thrive on chaos, which means we as an industry must be ever vigilant. The SEC has maintained its high level of oversight despite the mayhem caused by suddenly moving an entire organization home seemingly overnight. It is prudent to believe they will expect the same of the financial organizations they oversee.

Compliance

To maintain the same standard of compliance we can look to the other theme of the panel, greater reliance on technology. Enhancements must be made, and in a work from home environment the simplest solution is to upgrade the tools you need for the task at hand. Those taking false comfort in the notion that no firm has faced the wrath of the SEC due to COVID-related compliance deficiencies are in for a rude awakening. It took three to four years to see the initial fines related to the 2008 financial crisis, and there is no reason to expect that pattern will change. In the end, there is no such thing as a COVID-19 defense for failure to supervise, and if the SEC can do it, the expectation would be that firms can as well.

 

If you’d like to learn more on this subject or have questions, don’t hesitate to reach out to me at Dave.Ackerman@nice.com.