Preparing For An SEC On-Site Exam, Part One: What To Do Before Examiners Arrive

“If you haven’t started preparing for an SEC exam, you are already behind,” said Jeffrey Squires at IA’s Fall Compliance Conference 2012 on Monday. “And if you haven’t had an exam lately, that means there is one on the way.”

Squires, principal of Vista360, was one of four panelists offering their advice on successfully preparing for SEC on-site exams during a presentation titled, SEC Exams: Top Focus Areas and Best Practices Honed From Recent Encounters With Examiners. He was joined on the panel by:

Andrew Bowden, associate director, SEC Office of Compliance Inspections and Examinations

• John Walsh, partner, Sutherland

• David Prince, GC/CCO, Stephens Investment Management Group

As an IA Media Partner, CompliancEX had the privilege of sending Head Editor Beth Connolly and Marketing Director Nick Schmidt to attend the conference. This article is the first in a three part series taken from the session. The following two articles will cover best practices during and after an SEC on-site exam.

During his opening remarks, Andrew Bowden of the SEC commented on some of the agency’s top priorities and strategies guiding the examination process. He noted that the Commission is doing its best to stay current with the latest trends and technologies being adopted by today’s businesses and is analyzing the new risks that those new practices may pose in order to better direct its resources there. As an example, he cited the rising popularity of duly registering broker-dealers and investment advisers, as well as the growing prominence of alternative investment funds such as hedge funds, private funds, and investment strategy groups.

Bowden promised that the SEC does its best to properly allocate its capital to best protect investors. In order to better serve investors and the businesses being monitored, the SEC has made an effort to hire industry specialists and dispatch them to examine firms that are relevant to their backgrounds. “Our goal is to have the right people in the right place at the right time,” Bowden said.

Further, he cautioned that new registrants should absolutely expect to be examined within the first year of registering and noted that 25% of new registrants are visited within the first 12-24 months after registering.

How to prepare for an on-site SEC exam

1) Download SEC document requests and understand them.

2) Have a fire drill with your employees. Pull the data you will need for the on-site exam. Gather your team together  and make them aware of what will be expected from them when the exam takes place.

3) Work out the logistics of the exam. For example, where will you place the examiner in your office?

4) Is your code of ethics up to date? Pull out your compliance manual and make sure that it reflects all of the new newest industry regulations.

5) Make sure that communications between senior management and the chief compliance officer about developing compliance and risk assessment procedures are well documented.

Check back tomorrow for parts two and three.

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Beth Connolly is Editor-in-Chief of the Wall Street Job Report and the Compliance Exchange. She blogs creatively at When Nutmeg Met Basil. Connect with her on LinkedIn , Twitter, and About.Me.

About Beth Connolly

Beth Connolly is Head Editor, Writer, and Marketing Coordinator at the Compliance Exchange and the Wall Street Job Report. She tweets @Bethconnolly and shares her love of the good writing life at her blog, When Nutmeg Met Basil. A graduate of Middlebury College in Vermont, she works in Manhattan and calls Astoria home.

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