The Office of Compliance Inspections and Examinations (OCIE)

In the late 2010s, OCIE improved outreach both inside and outside the program and dealt decisively with the age-old problem of short staffing in the IA/IC program. The investment in digital communications and organizational innovation paid off when the National Exam Program remained on watch throughout the COVID-19 pandemic.

Strengthening Ties and Reaching Out

When it came to internal communication, regular in-person meetings allowed OCIE team members to share the nuances of their findings. Staffing arrangements also strengthened ties between different components of the program. The governance structure of the National Exam Program, for example, brought regional representatives together regularly, helping cement bonds established during the self-assessment phase.

OCIE had long ago prioritized external communication with registrants. The CCOutreach Program (renamed the Compliance Outreach Program) remained effective at putting compliance officers and SEC examiners on the same team. In 2012, OCIE launched a related outreach program for SRO Compliance officers.

Previously OCIE had communicated its yearly and new exam priorities through speeches and panels at industry conferences. Carlo di Florio continued the outreach by sharing itemized priorities memoranda compiled by the exam program. Said di Florio, “by publishing our priorities, we deputized CCOs all across the industry to take that as their checklist.”⁽⁶⁷⁾ Drew Bowden, seeking to establish a simpler, more powerful external presence, shortened the list. Beginning in 2013 OCIE put out a priorities memo early every year.

Another outreach innovation was the convening of enterprise risk management meetings with top leaders of large registrants. Marc Wyatt expected some resistance but encountered little, confirming Bowden’s assessment that “if you can actually have a reasonable dialogue with [large registrants] and give them some guidance, they’ll self-correct on their own.”⁽⁶⁸⁾

Tackling the IA/IC Problem

One thing that was not going to self-correct, however, was OCIE’s inability to effectively examine all of its many IA/IC registrants. The Dodd-Frank Act called for a study, completed in 2011, that listed three options, none of which were new: fund the hiring of a sufficient number of examiners; require the industry to create an SRO; or allow registrants to hire third-party auditors.

Every option was controversial. Congress had never fully funded the exam program and was not going to start now. The industry was unanimous against creating an SRO and convinced Congress to take the idea off the table. The third-party auditor option seemed the most practical to the Commission, but the big asset management firms opposed that measure as well. There was a fourth and new alternative, however, turning the broker dealer exam program over to FINRA and putting the newly available broker-dealer personnel to work on IA/IC examinations. Previous directors had considered, but rejected this alternative, aware of OCIE’s responsibility for broker-dealers, the incidence of sales practice abuse and fraud in the sector, and the potential challenges of converting broker-dealer examiners to IA/IC examiners.

Marc Wyatt was willing to take the step, however, and got permission from Chair White to make the greatest organizational innovation in the exam program since the creation of OCIE. “When we first made the announcement there was an audible gasp in the room,” recalled Wyatt. “I had to say to everybody, Okay, everybody breathe.”⁽⁶⁹⁾ Wyatt was determined to make the workforce transition all volunteer, and in the end a surprising number of broker-dealer examiners opted to move to the IA/IC program. By early 2017, about 100 former broker-dealer examiners had made the transition, helping increase the IA/IC examiner ranks by about 20 percent. In fiscal year 2017, OCIE was able to examine 15 percent of all investment advisers, up from 8 percent five years earlier.

Meanwhile, the broker-dealer program was returned to an oversight basis, more definitively even than in the 1970s. In October 2016, OCIE created the FINRA and Securities Industry Oversight (FISIO) Group which supervised SRO examination of the broker-dealer sector from the largest regional offices. OCIE also created a National Broker-Dealer Exchange (BDX) Group responsible for exchanges, transfer agents, clearing and settlement entities, municipal advisers, SIPC, and the PCAOB.

Pandemic and Division Status

Innovative technology and the ability to adapt organizationally all came into play after the emergence of the COVID-19 pandemic, which Pete Driscoll called “my most significant challenge.”⁽⁷⁰⁾ The Commission went into full telework status in March 2020. Previously, about 30 percent of OCIE exams had been “correspondence exams” conducted remotely through document requests. In 2020 the percentage shot up, with examiners on-site only when necessary.

OCIE also undertook pandemic-related projects. One was an outreach and assessment of market risk and volatility undertaken at the request of Chair Jay Clayton early in the COVID-19 pandemic. Another tracked unsophisticated investors, increasingly at home and on the internet, who traded in “meme stocks” such as GameStop.⁽⁷¹⁾

When vaccinated employees returned to their desks in August 2021, it was to a recently renamed employer. As OCIE had grown in stature during the National Exam Program period, there had been a rising drumbeat of familiar complaints from industry that it had become little more than an arm of the Division of Enforcement. Pete Driscoll wanted to make it clear that the exam program was distinct and separate. Driscoll was also considering another fact. In recent years, OCIE had grown to exceed more than 1,000 employees, making it the second largest entity in the Commission next to the Division of Enforcement. Beginning in 2017, Driscoll began good naturedly suggesting to Chair Clayton that OCIE deserved division status.⁽⁷²⁾

On the 25th anniversary year of the founding of the Office of Compliance Inspections and Examinations, Clayton decided that the time was right, and all of the Commissioners agreed. On December 17, 2020, the SEC announced the elevation of OCIE to the Division of Examinations. “The Division’s new name,” the statement explained, “reflects the important role that its expert staff play in support of the SEC’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”⁽⁷³⁾

The December 17 statement correctly rooted the creation of the Division of Examinations in the culmination of a process of growth and development begun when Lori Richards and John Walsh moved into their empty office floor in 1995 and began building a unified exam program. But the roots go much deeper. The very first Commission had created an Examination Division, abandoned within a year for reasons that may never be known. After a prolonged period of experimentation and evolution, the exam function had returned to the central place that it had briefly held 86 years earlier.