SEC Names Director of Division of Examinations

Leaders at the SEC say the role of the examinations program is critical for capital markets to function well and keep the public’s trust.

By DJ Shaw

The Securities and Exchange Commission has announced the appointment of Richard R. Best as director of the Division of Examinations, effective immediately. He has served as the division’s acting director since March 23.

“I’ve valued Rich’s judgment and counsel since I joined the SEC, and I’m thrilled he’s agreed to lead the Division of Examinations,” said SEC Chair Gary Gensler in a press release. “Our examinations program—acting as eyes and ears on the ground for the Commission—is critical for our capital markets to function well and keep the public’s trust. Rich’s experience leading three different SEC offices gives him perspective and relationships across the agency that will be invaluable to the division.”

Until March, Best was the director of the SEC’s New York regional office. He previously served as the director of the Atlanta and Salt Lake City regional offices. Prior to joining the SEC in 2015, Best held supervisory, litigation and investigative positions at the Financial Industry Regulatory Authority. He also spent approximately 10 years as a prosecutor in the Office of the Bronx County District Attorney, where he handled and supervised high-profile public integrity and organized crime prosecutions, among other matters.

Best received a bachelor’s degree from the State University of New York College at Old Westbury and a law degree from Howard University School of Law.

Best joins the SEC at a busy time for the regulator’s enforcement and examination arms. Back in August, following the release of its 2021 examination priorities list, the SEC announced a series of sanctions against eight registered advisory firms for failures in their cybersecurity policies and procedures that resulted in what the agency describes as “email account takeovers” which exposed the personal information of thousands of customers and clients at each firm.

The priorities list warned that the SEC’s examinations division “will continue to evaluate whether [regulated] entities have established, maintained and enforced written [cybersecurity] policies and procedures as required.” The priorities list indicates areas of focus will include “IT governance, IT asset management, cyber threat management/incident response, business continuity planning and third-party vendor management, including utilization of cloud services.”

Following those sanctions, the SEC announced in December charges against J.P. Morgan Securities LLC, a broker/dealer subsidiary of JPMorgan Chase & Co., alleging “widespread and longstanding failures by the firm and its employees to maintain and preserve written communications.”

According to a statement from the SEC at the time, JPMS admitted the facts set forth in the SEC’s order and acknowledged that its conduct violated federal securities laws. In turn, the company agreed to pay a $125 million penalty and implement robust improvements to its compliance policies and procedures to settle the matter.

In the same month, the SEC voted to finalize key reforms under the Investment Advisers Act to modernize the rules that govern investment adviser advertisements and payments to solicitors. The finalized amendments created a single rule to replace the previously distinct advertising and cash solicitation rules.

With its vote to finalize the new marketing standards, the SEC set a final compliance date of November 4, 2022. Since then, in anticipation of the compliance date, the SEC has withdrawn or modified a significant number of No-Action Letters published under the previous advertising rule and the cash solicitation rule. 

In a white paper assessing the state of the evolving adviser advertising landscape, Wagner Law Group Attorneys Seth Gadreau and Stephen Wilkes say the SEC’s actions represent a “substantial overhaul” of the now-defunct advertising and cash solicitation rules. Based on a firm’s current practices, they warn, compliance with the marketing rule can be a significant process. If firms have not done so already, they need to make sure they are on track for full compliance by November 4.

Another area of focus for the SEC is the examination and enforcement of issues related to Regulation Best Interest. Sources say the SEC was in “education mode” for Reg BI’s first six months, followed by a transition to more active examinations over the following year. In July 2021, for example, the SEC announced it was fining 21 investment advisers and six broker/dealers to settle charges that they failed to punctually file and deliver their Form CRS to their retail investors. Penalties ranged from $10,000 to $97,523.