More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Rep. Randy Neugebauer, R-Texas, responded Friday to an SEC Inspector General report by saying an incident involving SEC staffers that left "unprotected" potentially sensitive market and business information “shows a frightening lapse of judgment by the SEC."
Neugebauer (left), chairman of the House Financial Services Committee’s Subcommittee on Oversight and Investigations, voiced disappointment on Friday over details found in an SEC Inspector General report that computer security breaches had occurred in the agency’s Division of Trading and Markets.
A Democratic Senate Banking Committee aide told AdvisorOne that "the Committee has begun its bipartisan due diligence, including a briefing with the SEC and the Interim Inspector General, and will continue to examine the situation."
Neugebauer was responding to a report by the SEC’s Office of Inspector General recounting an investigation that began in January 2011 over alleged mismanagement of a computer security lab in the Division of Trading and Markets Automation Review Policy (ARP) program. The ARP lab, as it is known, is used to support the Division of Trading and Markets' Office of Market Continuity inspection program. That inspection program, known as the ARP program, inspects self-regulatory organizations, stock exchanges and clearing agency computer networks, the report states.
The original anonymous complaint, the report states, alleged that ARP lab staff and management “inappropriately allocated and spent significant budget dollars to purchase computer equipment for the lab without justification or planning; used unencrypted laptops during inspections, in violation of SEC information technology security policies; and inappropriately used SEC funds for training without filing proper training forms.” The anonymous complaint also alleged “unprofessional behavior, ineffective management and misuse of unrestricted Internet access.”
While no information was compromised, according to the report, which Neugebauer called "fortunate,” he added that he was “very disappointed to learn about the cyber security problems at the SEC.” He further said he "looked forward to working with the Inspector General and the SEC to ensure that similar lapses never happen again.”
SEC spokesman John Nester told AdvisorOne in an email message that the SEC Inspector General found that "four staff members had used unencrypted laptop computers in violation of SEC policy. Although we found no evidence that data was compromised, the problem was fixed and the two staffers responsible for maintaining and configuring the equipment are no longer with the agency.”