Preparing for regulatory examinations is a daunting prospect. If you haven't set up the policies and procedures to ensure you can handle such an exam at the drop of a hat, it becomes more than just daunting: it turns into a nightmare.
If you've never experienced an SEC exam, it's hard to know what to expect. Your team may only have a few employees who've dealt with a regulatory exam before this, and even then, they may not know what it'll entail for your business.
How can you prepare for the exam and ensure you don't fail due to a technicality?
That's where the assistance of an experienced legal team can be a massive help.
What to Expect - Initial Document Request List
While generally, the SEC will provide you with an initial document request list prior to coming onsite for an exam, there isn't always advance notice that you'll be the subject of an exam. If you do receive an initial document request list, you will be given approximately one to two weeks to produce the requested books and records. If you didn't receive advance notice, you will still be given a reasonable amount of time (usually 24 - 48 hours) to provide all requested information. That may include, but isn't limited to, the following:
- A copy of your compliance policies and procedures, as well as details about your risk assessment program
- Your cybersecurity and business continuity plan
- A copy of your most recent financial statements
- Organizational diagram of adviser and affiliates, detailing ownership, control relationships, and any changes in ownership
You'll need to provide these documents, and others, promptly. More often than not, the examination period covers a span of approximately two years, so you will be requested to produce documents in place during that entire period. If your business continuity plan has changed during the exam period, you'll have to provide both the former and the revised plan.
It's Essential to Prepare for the Onsite Examination
Often times the SEC will go onsite for a portion of the examination. This allows the staff to gain additional information about your internal business operations. More often than not, the staff will request to interview certain C-Level executives.
You will need to be prepared for: mock interviews, the production of and timely access to all required books and records, along with demonstration of your internal controls.
An SEC examination is an experience that you and your team will not soon forget. More than ever, it is essential to prepare, which is why seeking the help of a law firm specializing in SEC investigations and examinations is a worthwhile investment.
How Long is the Exam Expected to Take?
After the examiners complete their onsite interviews and the onsite document review, they will wrap up remaining criteria back at their offices.
Within 120 days, you'll hear back either that the exam is complete, or you'll be provided with an expected completion time.
Depending on the complexity of your business, the exam may only take a few days, or it may take several months to complete. If you adhere strictly to a clearly defined and up to date set of compliance policies and procedures, you're more likely to have an exam that is processed quickly.
Involving the C-Suite: What your corporate executives need to know
One of the things the SEC examiner will be looking for is a culture of compliance that starts at the very top of your firm.
This means your C-suite, in particular, needs to be extremely knowledgeable of and comfortable with the rules and regulations that apply to your firm. Working with counsel to maintain training and familiarity with your firm's particular regulatory landscape is essential to passing your SEC exam with flying colors.
Additionally, because each firm has its own specialties and focuses, no two advisory firms are exactly alike. For this reason, you will need to be able to demonstrate a customized compliance program. Customized compliance manuals - not generic templates that don't apply to your business - are expected. A carefully thought out compliance program is integral to demonstrating a culture of compliance to SEC examiners.
An SEC exam requires much more preparation and much more work than outlined here.
The ability to demonstrate a robust compliance program effectively during your SEC exam requires extensive preparation. You must be able to:
- Answer their questions appropriately and in full
- Gather a significant number of documents in a short period of time
- Showcase your culture of compliance
The best way to prepare is to partner with experienced and knowledgeable attorneys who specialize in your industry - attorneys such as the team at Jacko Law Group, PC.