It Takes a Village – Preparing for a Regulatory Exam

Advanced planning for a regulatory exam remains a vital step in ensuring the compliance team is prepared when the exam teams comes knocking. At the recent Ascendant/CSS fall conference in San Diego, Allison Fraser moderated the conference’s capstone session on the topic, joined by Bryan Bennett, the Associate Regional Director in the examination program in the SEC’s Los Angeles regional office; Asher Ailey, Chief Legal Officer and Head of Compliance at Research Affiliates, LLC; and Genna Garver, Of Counsel and Chair of the Investment Management Group at Dorsey & Whitney LLP.

During the session, Bennett provided the audience with a background of the exam program, how the increased use of data analytics has changed the exam staff’s approach, the practice of hiring examiners with industry background, and the role of the Private Funds Unit and interaction with the regional offices.

Ailey highlighted some key steps an adviser should undertake on an ongoing basis to ensure the effectiveness of a compliance program, including periodic risk assessments, ensuring that Form ADV and other filings are current and accurate, and conducting regular employee training. Ailey also recommends conducting a mock exam to gain an independent view of the firm’s compliance program. Garver noted that the exercise of producing documents requested in a mock exam informs the firm about its ability to respond to an actual exam.

Garver highlights the importance of advanced planning of the logistics of the exam, such as designating your exam team, identifying your process for producing and tracking documents and preparing an opening presentation to provide the background of the business to the exam staff. The panel also offered these additional suggestions:

  • Provide complete and accurate answers to any request or question. Be sure to ask questions if you don’t understand, and be specific as to your responses
  • Be timely in your responses and communicate promptly with the staff if you identify delays in producing documents
  • Make your senior personnel available during the on-site exam
  • Have someone, preferably the CCO, sit in during all interviews with firm personnel
  • Be professional and accommodating
  • Don’t do a data dump
  • Be careful about overly broad privilege claims
  • Keep calm

The panel noted that most exams end in some type of deficiency finding. For each finding, identify the necessary corrective action and advise the staff of your plan. Ensure that corrective measures are completed. While an exam is stressful on an organization, effective efforts before, during and after an exam can help minimize the impact on your firm.

Post written by Matt Calabro


Ascendant’s investment adviser services include SEC mock exams. For more information, contact us.

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