The SEC's Director of the Division of Enforcement, Gurbir S. Grewal, outlined five principles of effective cooperation with the SEC during his keynote address at the Securities Enforcement Forum West 2024 conference:
1. Self-policing: Regulated companies should actively monitor and identify compliance issues early. This can be done effectively by training, testing, and keeping informed about developments and risks relevant to their businesses and updating compliance policies accordingly, including relevant changes to their business due to technological advancements like AI and its attendant risks.
2. Self-reporting: It can be challenging for companies to determine when it is the right time to go to the SEC if issues should arise. Grewal noted that it is beneficial for companies to report misconduct to the SEC promptly upon identification, even before all key facts are known or internal investigations are completed. This demonstrates proactive compliance and can lead to reduced penalties. Grewal referenced Cloopen Group Holding Limited's case, where self-reporting accounting fraud violations contributed to the SEC's decision not to impose civil penalties.
3. Remediation: We all know that testing our compliance programs means fixing issues we identify, as we find them. For the SEC, effective remediation involves disciplining or terminating the individuals responsible for the identified issues, strengthening internal controls and policies to avoid having the same issues arise in the future, providing relevant training to all supervised employees, hiring external expertise for guidance, recovering executive compensation if applicable, and repaying investors for any losses sustained because of the firm’s failures.
4. Cooperation: Grewal believes regulated companies should aim to exceed legal requirements in cooperating with the SEC. This includes explaining internal processes, identifying and offering relevant materials beyond what's requested, translating foreign-language documents, summarizing internal investigations, and transparently communicating with the SEC.
5. Collaboration with the SEC: Transparent communication with the SEC is important. Providing examiners with relevant context around the information they are collecting helps establish the company’s credibility, and through such collaborative efforts, companies can help mitigate penalties.
The principles laid out by Grewal offer a roadmap for regulated companies which are faced with an SEC investigation or enforcement. They emphasize proactive measures, transparency, and comprehensive engagement with the SEC.
The roadmap is relevant beyond enforcement and applies to companies during routine examinations as well as in their day-to-day operations. The term “culture of compliance” is often tossed around by compliance professionals and for good reason. If companies establish their compliance programs within the fabric of their companies instead of laid on top of them, the requirements of the program become less cumbersome. The compliance program becomes integrated into the culture of the company, and the principles provided by Grewal become rote.
At 3iCO “integration” is one of our three “I” s. If you need expert guidance on building a “culture of compliance,” let us know. We can help.
