Rule 17h discussion was led by Michael Macchiaroli at FINRA’s Annual Conference in Washington, D.C.
“Compliance is an Asset” – said Jack Brennan at the annual 2017 FINRA conference, which set up the tone of the entire conference.
This message was echoed by many very informative panels consisting of various regulators and the industry leaders.
Rule 17h Risk Assessment discussion was led by Michael Macchiaroli as part of the Managing Operational Risks panel at FINRA’s 2017 Annual Conference in Washington DC.
Mr. Macchiaroli shared the following highlights:
- Rule 17h firms are being risk assessed by the SEC
- SEC currently visits 50 firms a year
- Expanded focus on Liquidity assessment is being considered by the SEC
During his presentation, Mr. Macchiaroli communicated that the Rule 17h analysis is progressively evolving at the SEC. The 17h filers are analyzed by the SEC risk analysts. This is a significant change since 2008, when the SEC’s focus was very different. See the OIG Report on SEC’s Oversight of Bear Stearns and Related Entities: Broker-Dealer Risk Assessment Program.*
Currently, the SEC Broker-Dealer Risk Office selects approximately 50 firms annually, out of the total population of 17h filers, for the in person visits from SEC Office of Risk Management & Control Division **. As an item of note, the SEC Broker-Dealer Risk Office focuses primarily on Rule 17h firms and a handful of Alternative Net Capital (ANC) firms.
Further, Mr. Macchiaroli mentioned that the SEC Broker-Dealer Risk Office is developing a liquidity review process. This was an interesting piece of information. The fact that the SEC brought it up during the conference could emphasize the significance of the message.
Although, it is unclear whether Mr. Macchiaroli was suggesting to the industry that the Rule 17h will be updated and the expanded Liquidity disclosure will be a part of the 17h requirements, or the SEC will start utilizing its existing resources combined with the current Rule 17h required disclosures and FINRA’s resources to develop a Liquidity analysis as part of the firms’ risk assessment by the SEC, it may be a signal for another significant change. Focusing on Liquidity was one of the lessons learned during the crisis of 2008. It will be interesting to see how this develops.
Overall this conference had a stronger emphasis on compliance from both the regulators and the industry leaders including Rule 17h.