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June 01, 2023 at 03:16 PM
What You Need to Know
- The question to keep in mind when pondering compliance exams is not can you do something, but should you?
- The answer will generally depend upon the nature of the issue, your tolerance for risk and the gravity of the potential consequences.
I’ve spent almost 35 years traveling the country preparing firms for regulatory exams. Having conducted several thousand on-site compliance reviews, I think I’ve generally heard and seen it all.
Most times, firms listen to my recommendations, but sometimes — and unfortunately to their peril — they don’t. Why do some firms determine they should do otherwise? I have found two primary reasons.
Remember when your mother said “no” to something that you wanted to do, and you retorted with, “Mom, all the other kids are doing it!”
Unfortunately, after 35 years, I continue to play that mom role, countless times hearing from firms throughout the country that “all the other advisory firms are doing it.”
That may be the case — but when regulators visit, they could care less! They are there to examine you and your firm’s conduct, not that of the “other kids.”
What other firms have done or might currently be doing will not serve as a defense. Such protestations will fall on deaf regulatory ears.
In other cases, I encounter the following retort from advisory firms: “Tom, the SEC was here two years ago and they never raised the issue, so they can’t bring it up now!”
Oh yes, they can — and often do. This is because when regulators subsequently revisit a firm, they couldn’t care less about prior exams — unless of course they advised you to do something in a previous exam’s Findings letter (about a deficiency) and you didn’t do it!
Here’s the proof from material information included in Securities and Exchange Commission Findings letters:
“The staff is bringing these findings to your attention for immediate corrective action, without regard to any other action(s) that may result from the examination. The findings are based on the Staff’s examination and are not findings or conclusions of, or binding on, the SEC or any of its divisions or offices.
