With all of the intense activity in the marketplace related to providing the initial 408b-2 and 404a-5 disclosures in a timely manner, there is what I could only describe as a "sea change" occurring, relatively quietly, behind the scenes in financial service firms related to the ongoing responsibilities under the DOL’s new disclosure rules.  For these firms, the issue isn’t really just about disclosure. Because 408b-2, in particular, is a prohibited transaction rule, its really all about keeping the revenue generated from ERISA retirement plans. Its about being able to stay in business.

This means that financial service firms have a huge economic stake in not just making the initial disclosure, but also in making sure that permanent compliance procedures are established, implemented and audited on a routine basis. Firms should also be taking a closer look at their myriad of revenues streams to make sure that not only are they reported correctly, but that there is a Prohibited Transaction Exemption that otherwise permits the revenue. 

A firm, then, is faced with a quandary. "ERISA compliance" staffs (to the extent a firm has this function) have generally had the function to answer technical questions and provide procedural guidance to operation staff and clients. There really has been no enforcement "teeth." The only part of these financial firms that really have had to have serious "control" functions have been the securities law compliance staff. It is typically only these staffs which have the expertise necessary to establish, implement, audit, enforce and report regulatory requirements on the firms’  substantive business. And it appears that it is the securities compliance staff to whom firms are turning to institutionalize ongoing 408b-2 compliance.

I had the pleasure of being on a panel with Gigi Fuhry and Jim Downing at the National Society of Compliance Professionals meeting in Chicago on " Integrating ERISA Compliance Into the Securities Compliance Program," where we outlined the framework of an ERISA Compliance program that can built into the securities compliance practice. The NSCP itself now has training modules which are designed for the Compliance professionals who now find themselves confronted with ERISA.  I’ve linked to a compliance list the three of us developed.

Welcome, securities compliance, to our world!