Look who’s under the Securities and Exchange Commission (SEC) microscope now!

This summer, the SEC is adopting new rules setting business conduct standards for security-based swap (SBS) dealers and major security-based swap participants. Beyond requiring all parties to “do the right thing” in all dealings, and to act “in good faith,” ethically, and with honesty and integrity, the Proposed Rules require the establishment of a “supervisory and compliance infrastructure.” This includes the requisite designation of a chief compliance officer (CCO), and all the recordkeeping and oversight that entails.

 The rise of the SBS CCO

Under the SEC’s Proposed Rules, SBS CCO’s will be required to establish, follow, maintain, and review compliance policies and procedures in line with the Exchange Act for prompt handling, management response, remediation, retesting, and resolution of non -compliance issues. Oh, and to publish an Annual Compliance Report. Each Report will be required to contain, at minimum:

• a description of the entity’s enforcement of its policies and procedures,
• any material changes to those policies and procedures since the previous Report’s publication;
• recommendations for material changes to policies and procedures resulting from the firm’s annual review; and
• reports of any material compliance matters identified since the previous Report.

Deeds, not compliance lip-service

Additionally, the Proposed Rules require submission of written proof that the firm’s CEO or equivalent officer has actually met at least once with the CCO to discuss a forthcoming Compliance Report, compliance efforts up to that time, and any significant compliance issues.

Moreover, to ensure that an SBS entity’s commercial interests do not unduly influence a CCO’s ability to make forthright disclosures, the Proposed Rules requires the CCO to report directly to the board of directors or senior officer of the firm, and that any decisions regarding the CCO’s compensation or removal must be made by a majority of the board of directors.

So what are you doing?

Who’s going to be your CCO? And equally important, how will that person manage the execution and oversight of firmwide compliance policies and procedures? It’s a big job. One that could drown a person in digital and literal paper.

The Proposed Rules for the security-based swaps industry are just the tip of the iceberg. We all know that regulations are like rabbits. They reproduce exponentially. Staying ahead of the deluge takes planning. So…Plan ahead. Be regulator ready.

…Let’s talk (212-233-1155). Ask about Patrina’s comprehensive compliance solutions and compliance recordkeeping specifically designed for the financial services community.