Oct 09, 2012
On September 27th, the Staff of the SEC’s Office of Compliance Inspections and Examinations issued a summary report of information barrier examinations of 19 brokerage firms, including several of the largest broker-dealers, that were conducted by the SEC, FINRA and New York Stock Exchange (“OCIE Report” or the “Report”). The OCIE Report contains the first comprehensive statement in more than two decades of the SEC’s views regarding financial firms’ controls to prevent the misuse of material, non-public information (“MNPI”).
Broker-dealers would be well advised to carefully consider the market practices described and the recommendations contained in the OCIE Report. In recent years the SEC has brought significant enforcement cases and imposed substantial fines against broker-dealers for perceived failures in the implementation of adequate information barriers. While the OCIE Report states that it reflects only the views of the Staff, and does not comprise legal authority, it may nevertheless be cited as setting appropriate standards by future examiners in deficiency letters or by the SEC in enforcement actions.
Reviewing the report would also be worthwhile for investment advisers, which increasingly must confront and manage MNPI and information barriers, particularly as their strategies and investment styles broaden.