OCIE Head Warns Firms to Strengthen Conflicts of Interest Practices
The SEC’s Director of the Office of Compliance Inspections and Examinations, Carlo di Florio, advised advisers and broker-dealers to increase their efforts to prevent conflicts of interest. Mr. di Florio defined a conflict of interest to include favoring the firm over a client, one client over another client, or employees over their firm. Mr. di Florio stressed the importance of practices that “may be technically within the letter of the law, but are not in keeping with the spirit of the law.” Mr. di Florio listed high-priority conflicts that OCIE will scrutinize: sales practices, outside business activities, mutual fund wrap programs, side-by-side portfolio management, affiliations between advisers and broker-dealers, and valuation practices. Mr. di Florio says that firms should create a “cross-functional leadership team to identify and understand all conflicts in the business model.” Firms should also have specific conflicts of interest policies and procedures including prohibited practices, training, monitoring, and discipline. Also, Mr. di Florio put responsibility on the firm’s business as “the first line of defense” with additional monitoring and testing responsibilities on compliance and internal audit.