The SEC's 58 Steps Program To Sober Up


SEC Inspector General David Kotz outlined today 58 steps the SEC must adopt to avoid potential future Bernie-like screw ups.

The steps — 37 for its examinations office and 21 for its enforcement division– come on the heels of
the scathing 450-page report Kotz released earlier this month, in which he detailed the SEC’s massive failure.

They also provide more insight into the SEC’s workings and a better (and mind boggling) understanding of its massive failure, as many of them would seem obvious for a financial watchdog. 

Seriously, what’s amazing is why so many of these recommendations aren’t already established.

Among the 37 steps, Kotz recommends:

-That examiners be provided access to industry publications and databases, and protocols be established for analysing information from these outside sources.

-That a specific protocol be implemented that explains how to identify red flags and potential violations of securities laws based on the information gleaned from these sources.
-The implementation of a collection system for capturing information in tips and complaints.
-A requirement of concurring review by an unaffiliated senior-level official.

-That examiners be required to document all substantive interviews, prepare detailed workpapers, and log all examinations into a tracking system.

-The development of a formal plan to ensure that within a three-year period, 50% of OCIE staff become qualified by means of an industry certification to conduct thorough and comprehensive examinations. 

And among the 21 enforcement steps:

– Establish formal guidance for evaluating various types of complaints and train appropriate staff on the use of the guidance.

-Require tips and complaints to be reviewed by at least two individuals experienced in the subject matter prior to deciding not to take further action.
– Establish guidance to require that all complaints that appear on the surface to be credible and compelling be probed further by in-depth interviews with the sources to assess the complaints validity and to determine what issues need to be investigated.

– Put in place procedures to ensure that investigations are assigned to teams where at least one individual on the team has specific and sufficient knowledge of the subject matter (e.g. Ponzi schemes) and the team has access to at least one additional individual who also has such expertise or knowledge.

Read the recommendations:

S.E.C. Inspector General’s Recommendations 2

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