Tuesday, October 15, 2019

Inspector General discusses challenges facing the SEC

By Amy Leisinger, J.D.

The SEC’s Office of Inspector General has issued a report identifying the most pressing challenges faced by the Commission. The report notes that, with regard to significance in relation to the SEC’s mission and potential fraud or abuse, the agency must continue to evolve in meeting its regulatory oversight responsibilities with respect to industry developments, in its efforts to protect its information systems and the data stored therein, and in improving management of outside contracts and internal personnel.

Oversight responsibilities. According to the report, the IG’s office continues to recognize that, as markets and products increase in size and complexity, the SEC faces additional challenges in fulfilling its mission of protecting investors, maintaining fair and efficient markets, and facilitating capital formation. The Commission’s Strategic Plan establishes goals to ensure that the agency adapts its operational focus to remain an effective regulator and keeps pace with changing markets while also ensuring sufficient examination coverage and investigations, the report notes.

Industry advancements have introduced new risks and magnified existing risks, but, for several years, the SEC’s annual appropriation was essentially flat, which required difficult operational decisions, according to the IG. Increased FY 2019 funding allowed the SEC to begin lifting the hiring freeze and address critical priorities, the reports explains, but the Office of Compliance Inspections and Examinations continues to face challenges with regard to limited resources and the size and complexity of SEC-regulated entities continues to grow. In addition, the timeliness of enforcement investigations remains a concern, according to the report.

The SEC continues to leverage technology and analytics to meet its obligations while conserving resources, the report states. To efficiently use resources, the IG notes that the agency continues to develop a modernized, more secure EDGAR filing system, to expand secure cloud computing, and to enhance analytic systems and to retire legacy applications. The SEC is also working on digitizing business processes to improve efficiency, the report explains.

Systems and data protection. The SEC also has taken steps to reduce the amount of sensitive information stored in its systems and to improve related security controls. However, the report explains, opportunities to strengthen its cybersecurity and information security program remain. While the Commission has introduced new security capabilities, improved its security controls and practices, and engaged outside experts to complete testing, the agency is assessing means by which to further reduce its “attack surface,” according to the IG. Although the SEC’s Office of Information Technology has taken steps to strengthen authentication mechanisms and reduce critical vulnerabilities, more must be done to implement recommendations from cybersecurity experts, the report states. The report also highlights the ongoing audit of the SEC’s management of its cloud computing services and the assessment of the agency’s mobile device program and controls for information protection that will be completed.

Contract and human capital management. The SEC relies on contractor support in a wide variety of its programs and operations, and contract management remains challenge, according to the IG. Commission management plans to further promote effective contract management by improving contracting officer communications, ensuring proper training, and conducting annual reviews of contract files, the report states. The agency also will continue to assess the use of time-and-materials contracts and related variations in costs to minimize risks to the Commission, the IG explains. In FY 2020, the report notes, the agency will further assess contract management and acquisition processes across each phase of the contracting life cycle.

Separately, the SEC will continue to work toward implementation of a new performance management program and to address previously identified human capital management challenges, the report concludes.