UpFront » News

The SEC wants firms to self-report compliance violations. But is that a good strategy and are there really benefits to self-reporting? Recent SEC cases penalizing firms for failures to adequately monitor off-channel communications have prompted a closer look at the value in self-reporting violations discovered internally. With comments featured in the Financial Planning story, FrontLine Compliance Founder and President Amy Lynch explains that SEC settlements with three firms show that self-reporting offers little benefit and does not diminish the larger consequences of a disciplinary action. She argues that despite reduced fines or the absence of one in these cases, all three firms that self-reported still ended up with a disciplinary record that must be disclosed to clients. Ms. Lynch notes that a censure was still issued against one firm that self-reported, despite demonstrating best efforts to train employees, monitor business-related text messaging and address the violations it uncovered. Seemingly supporting the argument against self-reporting, two SEC Commissioners questioned the validity of disciplining firms in these cases even when showing a commitment to rectifying problems. Once a violation is discovered by compliance, the best approach may be to fix it internally and conduct your own internal investigation as opposed to self-reporting, states Ms. Lynch. See Financial Planning (limited guest subscription), “WhatsApp case raises question if firms can even comply with SEC rules, commissioners say”