Business Compliance Partners Reports Regulator Focus on Conflicts of Interest

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Conflicts of interest are becoming an increasing focus of regulatory examinations by the SEC. Business Compliance Partners can help investment advisors uncover and mitigate potential conflicts.

In a recent speech, Carlo di Florio, Director of the SEC Office of Compliance Inspections and Examinations (OCIE) discussed conflicts of interest and risk governance. Mr. di Florio stated that conflicts of interest have recently become an area of increased scrutiny for SEC examiners as well as enforcement investigators. The SEC and the Financial Industry Regulatory Authority (FINRA) have begun to conduct special sweep examinations to identify and control conflicts of interest.

Since investment advisors have an obligation to put client interests ahead of their own, it is important to implement programs and procedures to detect and discourage situations where personal interests are placed before those of clients. Whenever individuals place their own interests (or those of someone else) ahead of clients, they breach their fiduciary duty and create conflicts of interest.

Mr. di Florio recommended that investment advisors establish programs that allow advisors to continually scan firm operations to discover ongoing and potential conflicts and put in place procedures for eliminating or mitigating them. Business Compliance Partners offers written supervisory procedures for investment advisors through its document management platform.

Additionally, Mr. di Florio recommended that investment advisors develop and implement a strong compliance and ethics programs that are tailored to address conflicts and referenced Rule 206(4)-7 of Investment Advisers Act, Rule 38-1 of the Investment Company Act, FINRA Rule 3130 (and NASD Rules 3010 and 3012) as resources to utilize in setting up these types of programs.

Finally, Mr. di Florio noted that establishing and implementing an effective compliance program has been considered as a mitigating factor by courts in determining criminal sentences for corporations.

Business Compliance Partners can assist investment advisors with establishing and implementing effective compliance programs that are designed to prevent conflicts of interest. However, in order to increase the effectiveness of these programs, advisors must provide sufficient resources along with strong management support.

Mr. Di Florio’s complete remarks on this subject were made in a speech to the National Society of Compliance Professionals and can be found here.

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