Securities and Exchange Commission: Steps Being Taken to Make Examination Program More Risk-Based and Transparent

GAO-07-1053 Published: Aug 14, 2007. Publicly Released: Sep 12, 2007.
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After widespread unlawful trading practices surfaced in the mutual fund industry in late 2003, the Securities and Exchange Commission (SEC), through its Office of Compliance Inspections and Examinations (OCIE), took steps intended to revise its examination process to better identify and focus its resources on those activities representing the highest risk to investors. More recently, some registrants raised concerns about the lack of communication from SEC examiners about the status of and results of examinations. This report (1) describes OCIE's revisions after 2003 to the examination approach for investment companies and investment advisers; (2) discusses OCIE's compliance with its examination exit procedures; and (3) describes reforms OCIE implemented since January 2006 to enhance, among other things, communication with registrants. To address these objectives, GAO analyzed OCIE examination data; planning documents and guidance; interviewed OCIE officials; and gathered views of registrants.

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Recommendations for Executive Action

Agency Affected Recommendation Status
United States Securities and Exchange Commission To encourage registrants to communicate their concerns, questions, or complaints to SEC about the examination process, the SEC Chairman should explore relocating the hotline to an independent office such as an ombudsman function within the agency or within a division or office that is independent of OCIE and, as part of the responsibilities of this office, consider requiring it to give OCIE management summary information on the development of trends resulting from complaints or inquiries.
Closed – Implemented
As of 11/20/07, SEC has revised its hotline to give incoming callers the additional option of speaking to staff in SEC's Office of the Inspector General, which is an independent office within SEC.

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