| Americas | Articles
The SEC’s enforcement summary for 2022 reveals a continued aggressive approach, penalising firms falling short. These results urge firms to focus on improving public accountability and ensure their regulatory processes remain watertight.
This approach was further underscored by Director Gurbir Grewalt’s remarks on November 15, 2022 before the Securities Enforcement Forum. He highlighted the Division of Enforcement’s role in restoring the public’s confidence in the SEC and financial institutions, noting three key efforts by his Division to do so:
- Obtaining penalties and remedies that deter misconduct and meaningfully hold bad actors accountable, protect investors and, where possible, help harmed investors recover their losses.
- Proactively investigating and charging cases across a spectrum of market participants and harm.
- Continuing to incentivize proactive compliance and meaningful cooperation.
During the 2022 fiscal year, the Division of Enforcement filed 760 total enforcement actions, representing a 9% increase over 2021. Additionally, the Division noted a record USD6.4 billion in recoveries, including fines and disgorgement, in those cases. The Commission stated that the penalties obtained should serve as a deterrent from future misconduct and enhance public accountability.
The release highlighted recent settlements against 17 broker-dealers for recordkeeping violations for a total of USD1.2 billion in penalties. Together with penalties against Ernst & Young for failing to prevent its staff from cheating on ethic exams, Barclays PLC for the illegal issuance of securities and Allianz Global Investors for concealing risks associated with its complex options trading strategies, the Commission has shown that it will make examples through large disgorgement and penalties for failing to uphold the public trust of the financial system.
As we’ve previously noted, the Commission is also focused on holding individual actors accountable by highlighting its continued reliance on data gathering and analytics in identifying and prosecuting cases of misconduct.
Leniency was another focus area, particularly in cases where firms cooperated with investigations or self-reported significant violations. While cooperation and disclosure always carry risks, the Commission clearly intends for the industry to believe it will not punish good faith disclosure. However, the Commission’s publication of its record-breaking fines and cases, along with Director Grenwalt’s remarks, should have a chilling effect on any firm who wishes to disclose violations without reprisal.
Chief Compliance Officers should continue to be vigilant in identifying weaknesses in their compliance programs. As the Commission routinely reminds us, although disclosure can cure most conflicts of interest, it’s not a retroactive solution. CCOs should take a note from the Commission’s approach to low-hanging fruit with easily provable cases. For remedial action to be taken, you must first:
- Look for broken windows in your organization and seal the leaks.
- Disclose your conflicts and document your approach to compliance.
- Encourage your staff to report breaches and good faith attempts of compliance, without reprisal.
Finally, the best indicator of a healthy compliance culture is for a proactive message from the top as to the importance of compliance.
How we can help
We support a number of clients on their compliance obligations, providing compliance health checks, evaluating registration requirements and ongoing advisory support. We can also take you through our very own mock exam process to help identify areas of weakness ahead of an SEC examination.
Get in touch to find out more or book your own mock exam with us.
Get in touch
