Needs of Investment Professionals
Regulator Exam Preparation & Representation
Regulatory exams do not have to be stressful; instead they can be a time to shine! We have handled numerous regulatory exams and understand exactly what the regulators are looking for and how to dialogue and communication with them.
Here are the key points for any examination:
- SEC examinations are administered by the Office of Compliance Inspections and Examinations (OCIE), and are designed to: (a) Prevent Fraud, (b) Improve Compliance, (c) Monitor Risk, and (d) Inform Regulatory Policy.
- The OCIE examines roughly 15% of all RIAs annually, so every RIA should be expected to be examined, on average, at least once every 7 years. (Examinations could be more frequent especially if the SEC has “cause” such as a high number of client complaints, a whistleblower referral, a negative news story, or certain questionable activities identified by the SEC.)
- Due to the Covid-19 pandemic, the OCIE has moved to conducting examinations remotely, unless it deems it absolutely necessary to be on-site. Therefore, most, in not all, documents will need to be uploaded electronically to the SEC’s secure portal (i.e., SEC’s “Email Encryption Solution” system).
- The CCO’s qualifications (e.g., his/her knowledge of relevant regulations and the firm’s policies & operations), training, independence and authority are among the chief factors the OCIE will examine. As a result, the firm’s CCO will be expected to serve as the primary communication channel between the firm and the OCIE examiners, and be present for all discussions with the examiners.
- Prior to an SEC examination, it is important for the CCO to:
- Ensure any deficiencies noted from a previous examination have been addressed, and verified for non-recurrence (e.g., confirming with manager over the area in which the issue was identified);
- Ensure all compliance documentation is in order (e.g., employee acknowledgments of their receipt and understanding of the Code of Ethics, documentation of compliance reviews, etc.); and
- Review the SEC’s current examination priorities.
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