November 10, 2020 • 11 mins
Join Oyster Consulting's former regulators Patrick M. Dennis, Jeffrey Hiller, Bill Reilly, Evan Rosser and Ed Wegener in our new podcast mini-series, Regulators- Behind the Scenes. In each episode, they share their experiences and perspectives as former SEC, FINRA and State regulators on document production and the value of cooperation with regulators, cultivating a culture of compliance and "tone at the top."
Oyster Consulting has the expertise, experience and licensed professionals you need, all under one roof. Follow us on LinkedIn to take advantage of our industry insights or subscribe to our monthly newsletter.
Does your firm need help now? Contact us today!
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Oyster (00:09):
Welcome to the Oyster Stew podcast, where we discuss
what's happening in the industrybased on what we see as we work
with regulators and clients.
Oyster consultants are industrypractitioners; we aren't career
consultants.
We've done your job and we knowthe issues you face.
You can learn more about OysterConsulting and the value we can
(00:30):
add to your firm by going to ourwebsite, www.oysterllc.com.
Patrick Dennis (00:43):
Thanks for joining us for this episode of
"Regulators- Behind the Scenes."One thing that we should
probably talk about iscooperation.
The SEC for years talked aboutthe value of cooperation, how
important it was to cooperate,particularly once they've gotten
to the Enforcement side ofthings.
My theory is, and my approachhas always been, to cooperate.
(01:06):
You want to certainly let theregulators know and tell them
that you were intending tocooperate fully and appreciate
their time, and all of thosethings.
There are times that you may notwant to cooperate quite as much
as they would like, or quite asmuch as you would say you are,
but you always want to give theimpression that you are trying
to cooperate and give them whatthey want until you get to a
(01:26):
point where you reach a seriousimpasse, and then you're making
a decision to fight rather thanto cooperate.
But up until that time, I thinkcooperating and giving that
impression is clearly important.
Evan, your thoughts?
Evan Rosser (01:42):
I think you cooperate up until the time it
becomes adversarial.
You don't ever want it to becomeadversarial, but at some point,
if they find violations, itmight where that line is, that's
for you and your Counsel todetermine.
But I think during theexamination phase, I think
cooperation is extraordinarilyimportant.
(02:04):
It just sets the tone becausethe examiners are human.
You don't want to look likeyou're fighting them, you're
hiding something.
It makes an impression.
It really makes an impression.
So get them as much as you can,as quickly as you can.
In my experience, I've never hada regulator turn down a request
(02:27):
for more time to producedocuments the first time around.
If you tell them ahead of time,"Hey look, can I have an extra
week?
I'm having trouble pulling thistogether." I've never heard of a
regulator saying no.
So, I think you need to workthat way.
I will say this (02:42):
if you ever have a regulator show up
un-announced, I would call yourCounsel immediately, because
every examination you shouldhave should be announced.
You should get a letter.
If they ever show up at yourdoorstep, boy, I would call my
Counsel, h ave them wait a fewminutes until you get
(03:03):
straightened out exactly whythey're there.
Patrick Dennis (03:06):
I actually was the CCO of a firm where the SEC
came in un-announced on a Mondaymorning.
I was five hours away.
I got a phone call and I said,"Well, tell h im to wait.
I'll be there in about five anda half hours because I've got to
go home and pack." It turned outto be fine, but they got some
information.
They got a tip from somebodythat was, what I would call a
(03:28):
very messy business divorce, andsomebody was trying to make life
complicated for the firm.
Until the SEC showed upun-announced, which everybody
says,"Oh, they don't do that;"well, they did.
They showed up Monday morning,and they stayed all week,
Evan Rosser (03:43):
You know, on that point, Patrick, again, FINRA,
did it when I was there and Iassume they continue to do it,
they will occasionally ask tocopy your hard drive on your
computers.
There's a process for that, andthey are entitled to do it under
certain rules and procedures.
(04:05):
So if they do ask that, if theywant to mirror your hard drive
and take an exact copy, there isa procedure by which they need
to let you know what they'vetaken and show you that they've
taken it accurately, and have aprocess for any privileged
documents that might be swept upin that mirror.
So if they do ask that, you'reentitled to find out exactly
(04:28):
what process they're going touse to do that, but they will
will ask that in some instancesand they are entitled to get it.
Patrick Dennis (04:35):
When they do ask for that, that is certainly the
time to call your Counselunquestionably, because if they
are asking to copy your harddrive off your computer, they
believe there's something onthere that they're not getting
elsewhere.
Ed?
Your thoughts?
Oyster (04:52):
Oh, absolutely.
It's not a routine thing.
Even in a cause investigation,where they think that there
might be some significantissues, it's not routine for
them to copy a hard drive.
There are cases, and those arecases where they think that
there's some really significant,bad things that have happened,
(05:12):
or that the firm isn't beingcooperative and not providing
information.
So to your point earlier, ifthat happens, call your Counsel.
Patrick Dennis (05:28):
Well, how do you show that there's a culture of
compliance and tone at the topto the examiners when they show
up?
Jeff?
Jeffrey Hiller (05:35):
Tone at the top is measurable.
I've mentioned earlier that whena regulator comes in, I always
have the CEO try and attend thefirst meeting, if only for him
to meet and greet people, ormaybe he'll stay there, she'll
stay there for 10 or 15 minutesso that they know that the CEO
is engaged.
I would meet, with regularmeetings, these CEO, or whoever
(05:59):
is driving Compliance.
I think that good complianceshould be rewarded and be part
of the compensation process, andbad compliance should be
sanctioned.
I think those are measurableways to show the regulator.
When they say"How's the tone atthe top," you don't have to say,
"Oh, it's great.
He talks about it every day."There are ways to demonstrate
(06:21):
that.
I think it's important and itdoes build a good culture when
the CEO is involved and whenpeople are rewarded or
sanctioned, depending on howthey do with compliance.
Patrick Dennis (06:32):
Ed, your thoughts?
Evan Rosser (06:34):
Well, I agree with that.
I don't think I've ever seen afirm where the fir that had
compliance problems, that didn'tstart really at the top.
I rarely see firms that wherethe person at the top really
wants to do the right thing, buthe's thwarted by all the people
below him.
I just really haven't seen that.
(06:56):
Certainly a t smaller firms,that's the case.
And I agree with Jeffrey, ifit's a smaller or m id-size
firm, if you can get the CEO tomeet with them the first day,
because he or she feels it'simportant and says,"Look, I
think it's important that I meetwith you.
I want you to know that we'retrying to do the right thing.
I empowered the Compliancestaff." I think that's really
(07:19):
important, and it does send amessage to regulators, just b
ecause they know it.
They know that, especially againwith smaller m id-size firms,
that f irm's compliance culturereally is a reflection of the
people at the top.
Jeffrey HIller (07:33):
When I've gone to big firms and worked there,
one of the things I would findcommon is that Compliance would
find a Code of Ethics violationand issue a sanction to the
individual.
That I would always put an endto because the business owns
Compliance.
Compliance, if they find aviolation or to bring it to the
business side, and it's a toneat the top, yes, the managers
(07:57):
have to be responsible for thepeople that work under them.
It makes Compliance less of apoliceman and puts the onus and
the tone on the business itself.
And that I think is critical.
Patrick Dennis (08:10):
Add your thoughts, please.
Ed Wegener (08:11):
I think tone at the top is part of the broader
category of the culture ofcompliance at the firm.
And you know, I think that thereare clues to that and examiners
are always looking for thoseclues.
It really goes to decisionslike, should something be
referred to Enforcement orshould it be an informal action,
and things like what the tone ofthe exam is going to be.
(08:34):
Some of the things that I wouldsay ar e c lues is t he tone at
the top, whether the firm isorganized, does it seem like
they have their act together?
Whether the firm appears to becooperative or obstructive,
whether the firm appears to bewe ll-me aning- are they trying
to do what's right?
Do they fix issues when theycome?
(08:55):
Do they argue every point or dot hey seek to understand what
the examiners are trying to getat?
Like we talked about earlier, dothey try to educate the
examiners on their business?
I think when you take all ofthose as a whole, you get a
sense of what the culture is atthe firm.
I think that that really setsthe tone, not only of t he exam,
but the full relationshipbetween the firm and th e r
(09:17):
egulators.
Patrick Dennis (09:19):
Bill, anything to add?
Bill Reilly (09:21):
I think one thing to add, all firms have
reputations, good, neutral, orbad, that shouldn't have an
effect on a regulator cominginto the firm because regulators
should come in and look at itfor Compliance or violations.
To add on to what Ed just said,I have gone into a lot of firms
(09:46):
as a regulator and sometimes asa consultant, and what happens
is, the people that are in theCompliance section say,"You know
what, I've found problems.
I've found issues.
I brought it to this Complianceperson or this supervisor or the
CCO and nothing happens." Ithink what happens in a lot of
(10:08):
those situations, people tend tosay, you know what, maybe it's
an accepted practice.
So it occurs for a period oftime and then one day in walks a
friendly regulator, and theylook at all of these and take a
look at what Ed said.
The fact is is that these thingsare going on because it's become
(10:29):
the accepted, unwritten cultureof the firm.
We don't look at high commissionand high producing salesmen,
people that are in certainactivities or groups.
We tried to do something, theCCO takes it to the CEO and they
just say,"Oh, that's just John,"or that's just Bill, or
(10:49):
something like that.
So what happens is it affectsthe whole culture, and then you
have issues across many lines ofthe Compliance department.
Oyster (11:05):
Thanks again for listening and be sure to follow
the Oyster Stew podcasts onwhatever platform you use.
If you would like moreinformation, feel free to call
us at(804) 965-5400 or visit ourwebsiteat www.oysterllc.com.
Welcome to the Oyster Stew podcast, where we discuss
what's happening in the industrybased on what we see as we work
with regulators and clients.
Oyster consultants are industrypractitioners; we aren't career
consultants.
We've done your job and we knowthe issues you face.
You can learn more about OysterConsulting and the value we can
(00:30):
add to your firm by going to ourwebsite, www.oysterllc.com.
Patrick Dennis (00:43):
Thanks for joining us for this episode of
"Regulators- Behind the Scenes."One thing that we should
probably talk about iscooperation.
The SEC for years talked aboutthe value of cooperation, how
important it was to cooperate,particularly once they've gotten
to the Enforcement side ofthings.
My theory is, and my approachhas always been, to cooperate.
(01:06):
You want to certainly let theregulators know and tell them
that you were intending tocooperate fully and appreciate
their time, and all of thosethings.
There are times that you may notwant to cooperate quite as much
as they would like, or quite asmuch as you would say you are,
but you always want to give theimpression that you are trying
to cooperate and give them whatthey want until you get to a
(01:26):
point where you reach a seriousimpasse, and then you're making
a decision to fight rather thanto cooperate.
But up until that time, I thinkcooperating and giving that
impression is clearly important.
Evan, your thoughts?
Evan Rosser (01:42):
I think you cooperate up until the time it
becomes adversarial.
You don't ever want it to becomeadversarial, but at some point,
if they find violations, itmight where that line is, that's
for you and your Counsel todetermine.
But I think during theexamination phase, I think
cooperation is extraordinarilyimportant.
(02:04):
It just sets the tone becausethe examiners are human.
You don't want to look likeyou're fighting them, you're
hiding something.
It makes an impression.
It really makes an impression.
So get them as much as you can,as quickly as you can.
In my experience, I've never hada regulator turn down a request
(02:27):
for more time to producedocuments the first time around.
If you tell them ahead of time,"Hey look, can I have an extra
week?
I'm having trouble pulling thistogether." I've never heard of a
regulator saying no.
So, I think you need to workthat way.
I will say this (02:42):
if you ever have a regulator show up
un-announced, I would call yourCounsel immediately, because
every examination you shouldhave should be announced.
You should get a letter.
If they ever show up at yourdoorstep, boy, I would call my
Counsel, h ave them wait a fewminutes until you get
(03:03):
straightened out exactly whythey're there.
Patrick Dennis (03:06):
I actually was the CCO of a firm where the SEC
came in un-announced on a Mondaymorning.
I was five hours away.
I got a phone call and I said,"Well, tell h im to wait.
I'll be there in about five anda half hours because I've got to
go home and pack." It turned outto be fine, but they got some
information.
They got a tip from somebodythat was, what I would call a
(03:28):
very messy business divorce, andsomebody was trying to make life
complicated for the firm.
Until the SEC showed upun-announced, which everybody
says,"Oh, they don't do that;"well, they did.
They showed up Monday morning,and they stayed all week,
Evan Rosser (03:43):
You know, on that point, Patrick, again, FINRA,
did it when I was there and Iassume they continue to do it,
they will occasionally ask tocopy your hard drive on your
computers.
There's a process for that, andthey are entitled to do it under
certain rules and procedures.
(04:05):
So if they do ask that, if theywant to mirror your hard drive
and take an exact copy, there isa procedure by which they need
to let you know what they'vetaken and show you that they've
taken it accurately, and have aprocess for any privileged
documents that might be swept upin that mirror.
So if they do ask that, you'reentitled to find out exactly
(04:28):
what process they're going touse to do that, but they will
will ask that in some instancesand they are entitled to get it.
Patrick Dennis (04:35):
When they do ask for that, that is certainly the
time to call your Counselunquestionably, because if they
are asking to copy your harddrive off your computer, they
believe there's something onthere that they're not getting
elsewhere.
Ed?
Your thoughts?
Oyster (04:52):
Oh, absolutely.
It's not a routine thing.
Even in a cause investigation,where they think that there
might be some significantissues, it's not routine for
them to copy a hard drive.
There are cases, and those arecases where they think that
there's some really significant,bad things that have happened,
(05:12):
or that the firm isn't beingcooperative and not providing
information.
So to your point earlier, ifthat happens, call your Counsel.
Patrick Dennis (05:28):
Well, how do you show that there's a culture of
compliance and tone at the topto the examiners when they show
up?
Jeff?
Jeffrey Hiller (05:35):
Tone at the top is measurable.
I've mentioned earlier that whena regulator comes in, I always
have the CEO try and attend thefirst meeting, if only for him
to meet and greet people, ormaybe he'll stay there, she'll
stay there for 10 or 15 minutesso that they know that the CEO
is engaged.
I would meet, with regularmeetings, these CEO, or whoever
(05:59):
is driving Compliance.
I think that good complianceshould be rewarded and be part
of the compensation process, andbad compliance should be
sanctioned.
I think those are measurableways to show the regulator.
When they say"How's the tone atthe top," you don't have to say,
"Oh, it's great.
He talks about it every day."There are ways to demonstrate
(06:21):
that.
I think it's important and itdoes build a good culture when
the CEO is involved and whenpeople are rewarded or
sanctioned, depending on howthey do with compliance.
Patrick Dennis (06:32):
Ed, your thoughts?
Evan Rosser (06:34):
Well, I agree with that.
I don't think I've ever seen afirm where the fir that had
compliance problems, that didn'tstart really at the top.
I rarely see firms that wherethe person at the top really
wants to do the right thing, buthe's thwarted by all the people
below him.
I just really haven't seen that.
(06:56):
Certainly a t smaller firms,that's the case.
And I agree with Jeffrey, ifit's a smaller or m id-size
firm, if you can get the CEO tomeet with them the first day,
because he or she feels it'simportant and says,"Look, I
think it's important that I meetwith you.
I want you to know that we'retrying to do the right thing.
I empowered the Compliancestaff." I think that's really
(07:19):
important, and it does send amessage to regulators, just b
ecause they know it.
They know that, especially againwith smaller m id-size firms,
that f irm's compliance culturereally is a reflection of the
people at the top.
Jeffrey HIller (07:33):
When I've gone to big firms and worked there,
one of the things I would findcommon is that Compliance would
find a Code of Ethics violationand issue a sanction to the
individual.
That I would always put an endto because the business owns
Compliance.
Compliance, if they find aviolation or to bring it to the
business side, and it's a toneat the top, yes, the managers
(07:57):
have to be responsible for thepeople that work under them.
It makes Compliance less of apoliceman and puts the onus and
the tone on the business itself.
And that I think is critical.
Patrick Dennis (08:10):
Add your thoughts, please.
Ed Wegener (08:11):
I think tone at the top is part of the broader
category of the culture ofcompliance at the firm.
And you know, I think that thereare clues to that and examiners
are always looking for thoseclues.
It really goes to decisionslike, should something be
referred to Enforcement orshould it be an informal action,
and things like what the tone ofthe exam is going to be.
(08:34):
Some of the things that I wouldsay ar e c lues is t he tone at
the top, whether the firm isorganized, does it seem like
they have their act together?
Whether the firm appears to becooperative or obstructive,
whether the firm appears to bewe ll-me aning- are they trying
to do what's right?
Do they fix issues when theycome?
(08:55):
Do they argue every point or dot hey seek to understand what
the examiners are trying to getat?
Like we talked about earlier, dothey try to educate the
examiners on their business?
I think when you take all ofthose as a whole, you get a
sense of what the culture is atthe firm.
I think that that really setsthe tone, not only of t he exam,
but the full relationshipbetween the firm and th e r
(09:17):
egulators.
Patrick Dennis (09:19):
Bill, anything to add?
Bill Reilly (09:21):
I think one thing to add, all firms have
reputations, good, neutral, orbad, that shouldn't have an
effect on a regulator cominginto the firm because regulators
should come in and look at itfor Compliance or violations.
To add on to what Ed just said,I have gone into a lot of firms
(09:46):
as a regulator and sometimes asa consultant, and what happens
is, the people that are in theCompliance section say,"You know
what, I've found problems.
I've found issues.
I brought it to this Complianceperson or this supervisor or the
CCO and nothing happens." Ithink what happens in a lot of
(10:08):
those situations, people tend tosay, you know what, maybe it's
an accepted practice.
So it occurs for a period oftime and then one day in walks a
friendly regulator, and theylook at all of these and take a
look at what Ed said.
The fact is is that these thingsare going on because it's become
(10:29):
the accepted, unwritten cultureof the firm.
We don't look at high commissionand high producing salesmen,
people that are in certainactivities or groups.
We tried to do something, theCCO takes it to the CEO and they
just say,"Oh, that's just John,"or that's just Bill, or
(10:49):
something like that.
So what happens is it affectsthe whole culture, and then you
have issues across many lines ofthe Compliance department.
Oyster (11:05):
Thanks again for listening and be sure to follow
the Oyster Stew podcasts onwhatever platform you use.
If you would like moreinformation, feel free to call
us at(804) 965-5400 or visit ourwebsiteat www.oysterllc.com.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.