Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor

Regulation and Compliance > Federal Regulation > SEC

Fight Back Against ‘Aggressive’ Exams

By Thomas D. Giachetti

X
Your article was successfully shared with the contacts you provided.

You have gotten the call, and the SEC is coming. What now? Are you ready? How do you prepare?

If you haven’t previously been though an exam, it can be very intimidating, but that is also the case for exam veterans who have been through several. The issues keep changing, as do the examiners, and you can’t rely on your last exam—if the SEC did not raise an issue during a previous exam, it is not prevented from doing so the next time. Also, the quality of the examiners continues to get better and the exam process much more rigorous.

Remember, you are a fiduciary—you are charged with knowing how your firm is complying with regulations, and if you do not know the answer, you are charged with ascertaining same. You can’t blame your consultant. The SEC is not coming to your office to educate you. To the contrary, it is coming to test your compliance processes. Prior to the new, more rigorous SEC regime under current Chairwoman Mary Jo White (who is proving to be very capable), the SEC was more apt to forgive compliance mistakes; not the case any longer. Remember, when you sign your Form ADV Part 1, you aver that the answers are correct, not that you have given it your best shot.

The exam is a performance. Are you performance ready? Can you assemble all the requested information and documentation in a timely manner? Is your chief compliance officer ready? Remember, it will be his or her job (not the CEO’s) to demonstrate to the commission the firm’s compliance readiness. The commission will be able to discern pretty quickly whether or not the CCO is up to the task: Is he or she capable and, if so, is there support from the top? Does the CCO have the requisite authority and resources for the job? Is he or she being treated as a member of senior management?

If the firm (the CCO) has done a good job with its risk assessment, it will serve as an exam proffer for what the firm does and, more importantly, does not do, thereby culling from the exam process many of the issues that the commission seeks to review. This is something that should be provided to the commission prior to coming on site so that it has a snapshot of the firm’s operations.

The SEC is a guest in your house. The examination process is not a regulatory investigation. The commission asks questions, you supply answers. It does not have the right to unfettered access to your offices, files, computers or employees. If it needs a document, you will provide it. If the document is maintained electronically, you will obtain it from your computer, rather than give the commission access to your computer systems. If it needs copies, you will make them. If it wants to interview certain employees, the CCO has the right to be there. (This is the test: Is the CCO the person you want there?)

The vast majority of commission examiners are good, decent people doing their job. Unfortunately, the commission has hired new examiners with a “prosecutorial” mentality who can be somewhat aggressive. As the commission should be treated with respect, so should it treat you with respect. There is rarely a reason or place for raised voices or aggressive questioning during an examination. If you believe that the examiner is doing so, object! Advise them that you are here to fully cooperate, but that this is your office; they are a guest, and so long as you are cooperating with your best efforts, the respect must be mutual. If it does not change, address your concerns with the branch chief. There is no reason for intimidation or aggressive tactics.

The CCO needs to be responsible and thick-skinned. If properly prepared, the examination should not rattle the CCO. Rather, he or she should stand ready to answer the questions in a concise, expedient and effective manner.

—Read more on ThinkAdvisor.

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.