SEC Zeros In on Advisors’ Whistleblower Compliance

By Melanie Waddell

October 27, 2016 at 10:36 AM

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The Securities and Exchange Commission is warning advisors and broker-dealers that examiners are zeroing in on their compliance with key whistleblower provisions under Rule 21F-17 of the SEC's whistleblower regulations.

The Commission has brought several enforcement actions recently charging violations of Rule 21F-17, the agency noted in its Oct. 24 Risk Alert.

Examiners are targeting advisors and BDs' compliance manuals, codes of ethics, employment agreements, and severance agreements to determine whether provisions in those documents pertaining to confidentiality of information and reporting of possible securities law violations may raise concerns under Rule 21F-17, the agency said.

The review is included in examinations as staff in the Office of Compliance Inspections and Examinations "deem appropriate."

The agency said in early October that money distributed to whistleblowers hit a single-year milestone in 2016 with $57 million in rewards.

Recent enforcement actions brought by the agency have identified certain provisions of confidentiality or other agreements required by employers as contributing to violations of Rule 21F-17 because they contained language that, by itself or under the circumstances in which the agreements were used, impeded employees and former employees from communicating with the Commission.

The Dodd-Frank Act amended the Securities Exchange Act of 1934 by adding Section 21F, entitled "Securities Whistleblower Incentives and Protection."

To implement Section 21F, among other things, the Commission adopted Rule 21F-173 under the Exchange Act, which provides that "no person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation."

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