Cordium, a provider of compliance consulting, accounting, tax and software to the financial services industry, has launched a Strategic Regulatory Response Plan for clients.
The new service was designed in collaboration with the founders of Strategic Enforcement Advisors (SEA) as part of an exclusive relationship between the firms.
The product prepares managers to deal with SEC enforcement or investigative action, comprising expert, targeted support and advice. It is not designed for firms currently reacting to or expecting imminent enforcement action. It is designed to enable firms to prepare for any potential future action, allowing firms to minimise disruption and focus on business continuity should the worst happen. This approach is already common among larger financial institutions, and eases the process for both firms and regulators.
The offering meets market demand for such a service, at a time when alternative investment funds are coming under unprecedented scrutiny from increasingly proactive regulators. In 2013, the SEC opened up 908 investigations (a 12 per cent increase on the year before) and obtained 574 formal orders of investigations (up 20 percent over the same period). In numerous speeches the SEC has made clear its intent to pursue any and all violations, from the minor to the major, regardless of firm size.
Bill Mulligan, chief executive at Cordium US, says: “Our launch of this service anticipates an evolving industry. Regulators are starting to take an increasingly no-nonsense approach to investigations. Enforcement actions are no longer just about bad actors or other obvious cases of wrong-doing. They can be triggered by the smallest thing and develop into a full scale regulatory review. This will only intensify and all firms would do well to put preparations in place.
“This is not a reactive service for firms particularly at risk of action. Indeed, by the time an enforcement action begins, it is too late to prepare the specific firms’ response handbook. Rather, this should be seen as a form of insurance. Metaphorically speaking, even if a firm follows every fire-safety protocol in the book, it is still prudent to have building insurance. Similarly, even if a firm has best practice compliance procedures in place, it is prudent to be prepared for any enforcement action. Routine preparation for such actions is common in the banking industry, and now it’s time for the alternatives space to catch up. This is especially the case in today’s environment, where 1 in 12 firms will face action.”
Priscilla Guevara, a co-founder at SEA, says: “If not planned for in advance, or proactively managed, investigations can be a drain on internal resources, cost millions of dollars in legal fees, impact morale, and significantly affect the focus of an advisor, impacting their ability to operate as a fiduciary. Mock audits are an effective tool to test for existing compliance deficiencies, but they do not prepare firms to deal with the practical and logistical issues relating to a full-blown enforcement case. Given the number of current investigations and the increasing number of enforcement actions, it is clear that managers should prepare themselves, in detail, for some form of impending invasive interaction.”