Compliance (and An SEC Exam) in the Time of COVID | Ascent

In this interview we sit down with Cheryl Pantano, a vice president and compliance manager who specializes in wealth management at RMB Capital Management, an SEC-registered investment advisory firm. In her role at RMB, Pantano is responsible for regulatory filings, writing policies and procedures, as well as conducting internal testing and mitigating overall risk. During our discussion Pantano touched on a variety of topics, including her team’s unenviable predicament of being both in the midst of a global pandemic and an SEC examination. 

Editor’s note: This interview has been lightly edited for clarity.

Prior to the pandemic, Pantano and her team were trying to wrap up their regular Q1 filing with the SEC, juggle requests for a separate examination with the SEC, and gear up for internal testing audits across RMB’s wealth management division.

In early March we were finishing up our regulatory filings for Q1, which is always a challenge in and of itself. As many compliance professionals know, Q1 is your biggest annual filing for the SEC due to the ADV form. Our ABD form is probably over 200 pages due to the fact that we have a lot of private funds and alternative investments, wealth management services, and asset allocation. In general, there are typically a lot of challenges in getting all of the data pulled together by the SEC’s deadline of March 31. 

Thankfully, we were able to compile all of that information early and file by March 17, before the pandemic really set in. But with a new year of filings there are different policies and procedures. Plus, we were (and still are) under SEC exam, which can often present more challenges in the forms of voluminous requests that require many departments, tight turnaround times, and an uncertain time frame of when the next request will come through. During an exam, you’re always on guard and ready to put down whatever you’re working on to address those new incoming requests. As an additional side note, I was also in the process of putting tests and forensic charts together for annual internal testing audits that I conduct on all of our wealth management teams around the country. 

In a twist of events, Pantano’s team received three additional requests from the SEC the weekend after all RMB staff started working from home—a move that required departments from across the firm to drop what they were doing to answer the voluminous and time sensitive requests.

As a result of the pandemic (and due to unforeseen requests by the SEC), our priorities had to shift. The irony here is that we started working from home and then that weekend we received three additional requests from the SEC. So that was, of course, a little overwhelming to suddenly be trying to work and answer time-sensitive requests in a remote environment, in the middle of a pandemic and a volatile market. Meanwhile, our advisors were doing everything they could to help our clients who were feeling the same uncertainty that were and trying to make sure that they felt comfortable.

But what happens when you receive an SEC request is a lot of departments other than compliance are affected. So everyone has to drop everything to fulfill a pretty voluminous request in a one to two-week time frame. As soon as the request came in, our compliance team got on the phone to review the request letter and discussed which departments would be needed to actually produce the documents for this request. Then we sent the request list to those departments and got on a WebEx meeting to walk through it with them together. It was a heavy lift, but everybody stepped up to the plate and we were able to answer the request despite the inopportune timing.

But unexpected requests have become the norm for Pantano and her team who have been under SEC examination since April 2019.

I always chuckle because I go to these compliance conferences and get a chance to commiserate with people who are in my same role, which is great because you’re suffering through the same things. However, I always found it surprising when people would raise their hand and say, “I’ve been in the business for 15 plus years and I’ve never been audited.” Meanwhile I’d think, “Wow, I’ve been in the business five and a half years and this is my fourth SEC audit.” I have learned a lot and I know now what to anticipate. 

This particular audit has been ongoing since April 2019. As anybody in the business would tell you, the regulators never really explain why they’re targeting your firm. But we always get the OCIE [the SEC’s Office of Compliance Inspections and Examinations] alert lists and based on what OCIE is going to be focusing on for the year, we [RMB Capital] seem to really tick all the boxes. We are very complex in the fact that we’re not just a wealth management firm. We’ve grown quickly. When I started, we had 4.3 billion assets under management and now we have 7.8. We’ve also seen fast growth because we’ve had a few large acquisitions, so I do believe that’s what put us on their [the SEC’s] radar because we were changing and growing so much. 

The team witnessed the SEC’s pandemic response first hand when they received a call from their SEC examiner, who wanted to know if there was anything that the regulatory agency could do to help RMB with any COVID-related challenges. 

The OCIE did announce that they were planning to provide regulatory filing relief for firms, as many were adjusting to the pandemic, market vulnerability, and remote work. Due to the fact that we were in an ongoing exam, we did have a call with our examiner and she ticked off continuity questions like: “What you’ve been doing in response to the pandemic?” and “How have you been working remotely?” Then she did also ask us what the agency could do to assist us with challenges that our firm was facing. We didn’t take advantage of the regulatory filing relief, but it was good to know that we could have used it if we ran into an issue. 

Thankfully, help is never far away for Pantano and her team. Even in the face of obstacles from the pandemic, such as cancelled informational conferences, Pantano has strong connections within the industry who can help provide any additional filing guidance.

Typically, I rely on annual conferences as a source of knowledge and specific regulatory how-tos. However, with many of them cancelled this year, I turned to people who I had met at previous conferences and other industry friendlies to see how they were tackling the same challenges that were impacting our firm. A great example of this recently happened to me when we were trying to determine how to fulfill a new regulatory filing requirement [from the SEC] called a CRS form, which stands for client relationship summary. It’s a two page document that is basically a summary of your firm. It outlines your firm’s advisory services, conflicts, and fees, and is intended to be helpful for anybody who is considering hiring a financial advisor. 

However, we weren’t really given much guidance about this form aside from, “Here are your conversation starters. You have two pages and you have to name all these things.” But going from a 200-page document down to two pages seemed like a colossal task. So we reached out to the compliance consultants who were putting out templates and guides about the CRS form to make sure that we checked all of the boxes for those requirements, as well as other compliance professionals at firms similar to ours to see what they were doing. The form ended up being one of those situations where you have to get it over the finish line, but you also want to make sure that you’re doing it properly and really need to seek out additional guidance. 

Another area of business that shifted was Pantano’s annual internal testing audits, which are now scheduled to happen virtually this year.

We have wealth management teams in Chicago, Denver, Minnesota, Michigan, Wisconsin, and D.C., so I typically would travel to those offices and conduct an audit a week. I operate very much like the SEC does for us—I schedule the audit, but the teams don’t know when it’s going to be, the sample clients that I’m going to pull, or what the requests will be. 

The week before I’m scheduled to be on site, I send our teams the forensic testing chart so they have a week and a half to gather those documents and put them online for me to review. I do not review those until I’m on site. In the interim, if the teams have a question or determine that something isn’t applicable to them, they have time to reach out to me proactively before the audit so I can either pick a different client or ask a different question before arriving on site to discuss in person. Unfortunately those audits will have to be remote audits this year. The on-site part I’m going to miss, but I’m going to try to conduct it the same way virtually. 

While many developments have changed the course of business this year, Pantano has remained encouraged by RMB’s culture of compliance, even in a remote work environment.

Our former CCO instilled in me that we’re to never stop planning for things, mitigating risks, and being open to requests. Together, we always wanted to build a culture of compliance within the firm where people could ask us anything. We wanted our colleagues to know that we’d rather talk about something ahead of time versus asking for forgiveness later. We wanted them to come to us with a potential compliance risk so we could get down to what they were trying to accomplish, and then determine if there was a better way to approach this and still fall within our guidelines.

I worry mostly about the things that I don’t know. I can make an effort to repair things that I do know, but it’s the things I don’t know. However, I feel like our firm is pretty up to speed on what all of the teams are doing. We’re having more company meetings to touch base with one another. The fact that we already laid out this culture of compliance has helped in this environment because I already knew what we’re doing on a day to day basis, so not much has changed. But a lot of it is just good communication.

If you’d like to learn more about RMB Capital Management, visit their website. To learn more about Cheryl Pantano, connect with her on LinkedIn

If you’d like to contact an Ascent team member, you can do so here. Stay tuned for our next interview from the lines of defense. All interviews will be featured in our monthly Cliff Notes newsletter, which you can subscribe to below.

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