For anyone involved in compliance, 2015 may be the year that gives "so much to do, so little time" new meaning. In his December 10, 2014 "Remarks to the ICI 2014 Securities Law Developments Conference," Norm Champ describes points to keep in mind. Notable is his mention of risk monitoring as a key area for his team of U.S. Securities and Exchange Commission ("SEC") regulators.

It is no surprise then that the SEC is active in enforcing what it characterized as a concealment of risk. According to a recent action list, the SEC has charged a variety of organizations, alleging fraud for risk reporting misdeeds to include:

• "hiding millions of dollars in losses";
• "misleading investors";
• "making faulty disclosures about collateral selection";
• "using 'dummy assets' to inflate the deals' credit ratings";
• "selling them unsuitably risky and complex investments";
• "without fully understanding their complexity or disclosing the risks to investors";
• "failing to disclose that it retained millions of dollars in upfront cash"; and
• "allowing a third party to influence the portfolio selection process."

In my experience, that same focus on risk is occurring in private litigaton. Serious questions are being asked about reported risk versus economic risk, who knew what and when and how uncertainty was managed.

When I am engaged as a financial expert, one of the first things I do is to review all of the materials relating to product structure and the provider. I never rely on investing reports as a singular measure of risk.

As I have written many times, there are lots of ways to camouflage "real" economic risk. Often times, the gap between reported risk and true risk is allowable under law, industry standards and/or accounting guidelines. If numbers are not fully understood, using them for any decision, can lead to problems. Suppose, for example, that quarterly reports reflect inflated assets and are subsequently used by a pension fund investor to alter its allocation. Even if the higher values are legitimate (in the context of allowable rules), the net outcome is that a change in asset mix is either too high or too low (depending on the direction and size of the change). Rebalancing of a portfolio determines the fees paid by an institution as well as the overall riskiness of its total assets. An investor could be breaching its sector limits which then triggers non-compliance with its documents and possibly the law. In essence, there is a cascade of costly effects that occur due to an initial cause, i.e. a reliance on the "bad" returns that are generated by using inflated assets. 

Paraphrasing the famous public service announcement, "It's 10 PM," do you know where your risks are?