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5 Questions Brokers Face From SEC Audits

5 Questions Brokers Face From SEC Audits 5 Questions Brokers Face From SEC Audits

5. How Does the Board of Directors Ensure Oversight?


How is the board staffed and structured to ensure it can effectively set risk parameters, foster an effective risk management culture, oversee-risk based compensation, systems and effectively oversee risks faced by the firm?

5 Questions Brokers Face From SEC Audits 5 Questions Brokers Face From SEC Audits

4. How Does Senior Management Ensure Effective Oversight?


How is senior management making sure that there is sufficient management of risk across the enterprise, including in business processes, strategic planning, capital allocation, performance management and compensation incentives?

5 Questions Brokers Face From SEC Audits 5 Questions Brokers Face From SEC Audits

3. How Independently Done is Your Internal Audit?


How do auditors independently verify and provide the board and senior management with assurance that risk management, compliance and control functions will operate effectively?

5 Questions Brokers Face From SEC Audits 5 Questions Brokers Face From SEC Audits

2. How Do Your Embed Risk Management in Your Processes?


How are key risk management, control and compliance functions structured and resourced to ensure they are effectively embedded in the business process? How do you do this, while having the necessary independence, standing and authority to be effective in helping the organization identify, manage and mitigate risk?

5 Questions Brokers Face From SEC Audits 5 Questions Brokers Face From SEC Audits

1. How Will Your Business Units Manage Risk?


How do the business units ensure they are taking and managing risk effectively at the product and asset-class level in accordance with the risk appetite and tolerances set by the board and senior management of the whole organization?

5 Questions Brokers Face From SEC Audits 5 Questions Brokers Face From SEC Audits

5 Questions Brokers Face From SEC Audits


Budgetary constraints appear to be shifting the Securities and Exchange Commission’s approach to monitoring broker-dealers from regulatory compliance to enterprise-risk management.


Broker-dealers had better be prepared to handle some tough questions on their procedures and controls to mitigate risk and can no longer pass the burdens of meeting SEC requirements to junior managers.


“We will incorporate a strategic dialogue of the enterprise risk management framework into our exams so we can effectively distinguish the forest from the trees and then dive into targeted exams in focused risk areas such as products, asset classes and business units to test effectiveness,” said Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations in a speech given to compliance directors of brokerage firms at its Washington DC headquarters on Feb. 8.

Broker-dealers had better be prepared to handle some tough questions on their procedures and controls to mitigate risk and can no longer pass the burdens of meeting SEC requirements to junior managers.

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