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What to Do—and Not Do—at Your Next SEC Exam

What to Do—and Not Do—at Your Next SEC Exam

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February 19, 2016

Navigating Your Next SEC Exam

Experienced and skilled compliance officers are adept at managing almost any regulatory exams. These compliance officers use their instincts, training, and experience to manage through the issues that arise during an exam.

As a compliance consultant for the last two years, I have seen the inner-workings of multiple firms and have witnessed many different styles of managing regulators. It has surprised me how often well-meaning compliance officers miss the mark on managing an exam. The problematic styles I have observed include:

  • Acting too relaxed and unconcerned
  • Being dominant and overbearing
  • Behaving in a threatening manner
  • Delivering too many documents
  • Hiding the ball
  • Being uncommunicative
  • Acting overly sociable
  • Being too cautious

At times, these styles are the result of a strategic decision regarding exam management. Often, however, the strategy seems to develop out of fear of the examiners or regulators, or even as a result of guidance by senior management within the firm. Senior officers have become sensitized to the regulatory environment and they understand the ramifications of a negative exam. At the same time, senior officers may fear the regulatory process and, as a result, set a tone of either defensive or offensive regulatory management. In addition, in situations where compliance reports to the legal department, or the chief compliance officer and general counsel are the same individual, litigation training and instincts can overshadow good regulatory management.

As a result, I have at times guided senior managers as compliance officers toward the most effective way of managing a good regulatory exam. I’ve also helped mitigate penalties that are the result of an adverse regulatory exam.

By far, regulators value individual and firm credibility the most. No matter how negatively an exam is going, maintaining credibility should be the first concern. The following are mechanisms that enhance credibility:

  • Timely responses
  • Quality responses
  • Knowledgeable responses
  • Accepting responsibility (it should be noted that this suggestion must be handled with sensitivity to ensure that the regulators are not looking to you for personal liability)

There are, of course, ways to ease into the examination process. The value of leading the examiners through your firm with openness is significant. Often times, I have experienced pushback from firms in regard to this approach because the regulators do not require it. My experience, however, has been that this approach not only assists the regulators in helping them ask relevant questions, it often shortens the exam process. I would recommend taking the following steps:

  • Prepare an introductory presentation
  • Explain investment strategy and market opportunity
  • Identify risk areas and relevant compliance controls
  • Identify key personnel

Not only are these tactics tried and true, I have also surveyed multiple regulators in the past few months about the best way to influence members of their profession. Each participant responded that credibility and knowledge were the leading characteristics that lead to regulatory trust.


Compliance Science, Inc. is hosting a February webinar entitled, “Navigating Your Next SEC Exam“. The webinar conversation will focus on a range of considerations that represent the end-to-end lifecycle of an exam. REGISTER NOW!



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