Sep. 18, 2022
Dear Ms. Countryman: The first bullet point in the SEC’s Strategic Plan Fiscal Years 2022-2026 (“Strategic Plan”) is Investor Protection. This is the focus of my comments. I am a compliance professional working at a small broker-dealer and the affiliated investment adviser. We serve retail investors. While I certainly have feedback regarding some of the other strategic approaches mentioned herein, it would be remiss of me if I didn’t communicate what I see at the greatest threat to investors and the financial services institutions and implore the SEC to address this in the Strategic Plan. A Report from the Front Line I work closely with our operations and client services staff to develop policies and procedures to serve our clients. For many years I have witnessed firsthand the evolving nature of external fraudulent attempts to gain access to clients funds. The criminal approaches change, are increasingly sophisticated, targeted and circumvent widely adopted remedial procedures aimed at stopping previous schemes. It is an ongoing battle. I am referring to Operational Risks, such as defined in the OCC Bulletin 2019-37, 7/24/2019 Operational Risk: Fraud Risk Management Principles https://www.occ.treas.gov/news-issuances/bulletins/2019/bulletin-2019-37.htmlExternal. In particular: External fraud - committed by a person or entity that is not an employee, a former employee, or a third party engaged by the entity. Victim fraud - occurs when a customer is the victim of an intentional fraudulent act. There appears to be a great deal of resources and focus in the banking industry to alert banks to these Operational Risks. And for good reason. However, within the financial services industry, often broker-dealers an investment advisers become aware of Operational fraud schemes either when it happens at their firm, at an industry event, from a consultants email, or by chance through industry folklore. FINRA has taken strides to increase alerts to broker-dealers. When I learn a firm had to shut down due to an External or Victim Fraud event my heart drops. The collateral damage not only extends to the firm professionals but to their clients as well. As studies indicate (the FTC and FINRA Investor Education Foundation have many), knowing about a scam increases ones chances of not falling victim to it. I urge the SEC to support the implementation of a purposeful, collaborative and effective communication system to alert broker-dealers and investment advisers of Operational Risks of this nature. All the components are there. We need the initiative to make it happen. It would be quite a victory when in the back channels of the dark web, criminals start to shift their attention and say, “yeh, those U.S. firms talk with one another.” Please make it so. Jennifer L. Szaro, CRCP®