The SEC recently announced that they imposed a dramatic 40% increase in penalties from FY21 to FY22. This year's penalties mark highest in the last five years. Investment Advisors / Investment Companies faced 23% of the enforcement actions, the most of any Primary Classification. (https://www.sec.gov/files/fy22-enforcement-statistics.pdf )
We would not be surprised to see these penalties go up even more in FY23, as industry-wide we continue to see OMS rule library accuracy rates averaging only 65%. The low accuracy rate generally stems from data switching errors, vendor updates, and changes in the investment process or strategies. But that's not all: it can also come from missed or misinterpreted requirements language in IMAs, addenda and various updates. All these contribute to slippages in rule compliance. Moreover, the SEC holds firms responsible, and compliance teams get penalized for these compliance errors, even though they are not at fault.
"As reflected in these results, the Enforcement Division is working with a sense of urgency to protect investors, hold wrongdoers accountable and deter future misconduct in our financial markets," said Gurbir S. Grewal, Director of the Division of Enforcement. "While we set a Commission record this past fiscal year for total money ordered at $6.4 billion, including a record $4.2 billion in penalties, we don't expect to break these records and set new ones each year because we expect behaviors to change. We expect compliance." (https://www.sec.gov/news/press-release/2022-206#:~:text=Money%20ordered%20in%20SEC%20actions,also%20the%20highest%20on%20record)
While the front office’s job focuses on avoiding trading errors, Portfolio Managers rely on your OMS compliance system to catch any preventable errors. You can create an environment to detect those errors with precise compliance rules that prevent trade errors, streamline trading flows, and support the best execution. Because of this huge uptick in SEC penalties, our team here at IMP created CLEAR Compliance™ for reviews to take half the time while dramatically increasing accuracy, transparency, and organization for our clients.
To take your firm's accuracy of 65% to virtually 100%, you can start by upping the frequency of the review of your accounts. It has now become essential to increase the accuracy of your library, given the increase in fines.