|10/23/2006 – The SEC has begun a sweep of investment advisers and broker-dealers to track down perpetrators of identity theft. But the Commission is also investigating how those firms prevent identity theft and compensate clients who become victims, said an SEC official.
The sweep began recently and is still ongoing, John Walsh, associate director and chief counsel at the Office of Compliance, Inspections and Examinations told The National Society of Compliance Professionals National Meeting earlier this month in Washington, DC.
This is not the first time the regulator has investigated the issue. About three years ago the SEC examined a wide range of firms and looked into their policies and procedures, Walsh said in a private interview with CCH Wall Street.
The regulator initiated its latest sweep when it learned that the number of identity fraud cases was increasing and that ID thieves’ methods were growing more sophisticated. For instance, there have been more examples of identify theft from fellow family members.
Normally, the compliance department would tend to shy away from identify theft issues because many associate the problem with computers and technology. But Walsh told the audience that is not always the case.
The SEC hopes to find firms with robust procedures to prevent the problem, as well as how firms disclose those plans. But the sweep won’t just be a fact-finding investigation. The Commission plans to file charges against those who commit identity theft and is looking for evidence on how the crimes are committed.
During his panel discussion, Walsh said that some firms do repay all losses for clients who are victims of identify fraud. He declined to name the firms, but said the SEC was not favoring that method over others in compensating clients.
Identity theft was just one of a number of issues that Walsh discussed with the audience at NSCP’s annual meeting. Another topic was the ongoing issue of point of sale disclosure. The SEC has put a few proposals out for comment, and the latest one attracted more than 5,000 letters.
The staff is working on coming up with a final rule. Walsh said that the industry should “expect things to happen,” but he declined to say when a rule will be published or what it would entail.
“We have the chance to dialog with our regulators and have an impact on the formation of the (point of sale disclosure) rule,” said Kathleen VanNoy-Pineda, a member of the NSCP board from Smith Barney, Citigroup.
Walsh also updated the audience on the gift and entertainment rule. Both the NYSE and NASD have put out rules on the topic, and were now working together to iron out any differences between the two.
He also told that crowd that when the SEC is looking for emails, it is generally focused on one or two issues and the information request should reflect that. Firms should not be receiving requests like “all emails from the compliance officer.” If that was the case, Walsh encouraged the audience to call him about it.
Finally, Walsh was highly optimistic about the state of the industry. He spoke of how compliance officers are building institutions like mandatory access to the heads of organizations, compliance reports and reviews and the annual review.
“I view this as a very promising time,” Walsh said. “Bubbles may come and come but these institutions you’re building will benefit us for years to come.
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