Given the trends that are emerging for enforcement by the U.S. Securities and Exchange Commission (SEC), what’s a risk manager to do?

“Risk managers should use data and data analytics to identify patterns,” said Steven Hilfer, Managing Director in the Disputes & Investigations practice, Capital Markets at Navigant. He was the fourth and final speaker in a four-part webinar panel titled “SEC 2018 Enforcement Trends” sponsored by the Global Association of Risk Professionals (GARP) on July 25, 2018.

He argued that the SEC is plunging ahead in the area of data analytics, and it expects companies “to identify patterns prior to being approached by the regulator.”

Hilfer noted the SEC uses data “for exam scoping and planning” as well as “to analyze filings and trade activity.” His preeminent advice for risk mitigation is “to perform risk assessments just as if the SEC was coming in.”

He also touched on some recent SEC enforcement cases, which can be “divided into valuation and accounting; and investment advisor actions.”

Investors rely on investment advisors “especially in opaque markets,” he said. “Some of those cases involve fair value accounting.” There are five types of allegations: for example, “the failure to design and implement controls.” The potential for misunderstanding underscores the “need to clearly document choices made in valuation.”

To mitigate risk in valuation and accounting cases, he suggested three things:

  1. Use of industry experts to explain market practice
  2. Use of an accounting expert to explain proper interpretation of fair value accounting
  3. Cooperation with regulators

Above all, risk managers should review the SEC Risk Alerts. These highlight risk and compliance issues identified in letters to all registered advisers. ª


Click here to view a report of the first presentation, by Amy Poster.

Click here to view a report of the second presentation, by Ken Joseph.

Click here to view a report of the third presentation, by Thomas Zaccaro.

Click here to view the GARP Webcast- SEC 2018 Enforcement Trends and Risk Management: Beyond Broken Windows.