SEC Chairman Mary Schapiro Outlines Priorities

When Mary Schapiro was appointed as the head of the Securities and Exchange Commission in December, it was understood that she would be charged with transforming the agency into a "21st-century regulator." And she has hit the ground running.

During one of her first speeches as SEC chairman, as part of the Practising Law Institute's "SEC Speaks in 2009" program in February, Schapiro acknowledged that the SEC needed to move quickly to correct internal problems and restore stability to the markets. "The crisis facing our capital markets will require aggressive and timely action to restore investor trust and confidence," she said, outlining several priorities.

Schapiro's remedies include:

• Improving the quality of credit ratings by addressing the inherent conflicts of interest that credit rating agencies face as a result of their compensation models and limiting the impact of credit ratings on capital requirements of regulated financial institutions.
• Reducing systemic risk to investors and markets by promoting -- and appropriately regulating -- centralized clearinghouses for credit default swaps.
• Strengthening risk-based oversight of broker-dealers and investment advisers.
• Improving the quality of audits for nonpublic broker-dealers and promoting the safe and sound custody of customer assets by any broker-dealer or investment adviser.

But the SEC isn't likely to stop there. According to joint testimony by the SEC's Andrew J. Donohue, director of the Division of Investment Management; Lori Richards, director of the Office of Compliance Inspections and Examinations; Erik Sirri, director of the Division of Trading and Markets; Linda Chatman Thomsen, then director of the Division of Enforcement; and Andrew Vollmer, acting general counsel, Office of the General Counsel, at the third hearing by a House Financial Services subcommittee on the Madoff fraud on Feb. 4, the SEC has outlined several "ideas that the offices and divisions of the SEC are considering recommending to the Commission to explore, ... including both changes and improvements to regulation and oversight, which might make fraud less likely to occur and improve the ability to detect it."

Among the topics being explored are the examination frequencies for investment advisers, the existence of unregistered advisers and funds, the different regulatory structures surrounding brokers and advisers, the existence of unregulated products, and the need to strengthen the custody and audit requirements for regulated firms.

The testimony also outlined that the SEC is looking at ways to improve the assessment of risk as well as "the adequacy of information required to be filed by registered firms and used to assess risks, and whether the risk assessment process would be improved with routine access to additional information."

The official testimony continued, "We are targeting firms for examinations of their custody of assets and expanding our efforts to examine advisers and brokers in a coordinated approach to reduce the opportunities for firms to shift activities to areas where they are not subject to regulatory oversight."