Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, March 10, 2009

Schapiro on New Era of Responsibility

Excerpts from SEC Chairman Schapiro's speech at 2nd Annual CCOutreach BD National Seminar, Mar. 10, 2009:

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.

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