The Survival Guide to Regulatory Examinations

The regulatory environment for registered investment advisers and registered broker-dealers has changed since the financial meltdown from a few years ago because of more aggressive enforcement actions by the U.S. Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority, Inc. (“FINRA”). In a regulatory environment where the securities regulators are pursuing vigorous compliance examinations and increased cooperation between the SEC’s compliance and enforcement staff, it is important that firms are well prepared to handle these examinations. The failure to take regulatory examinations seriously or devote the requisite resources to compliance and internal controls could result in firms incurring significant fines, receiving negative publicity, damaging relationships with its investors (or even losing investors), or being subject to suspensions or bars from the industry. For these reasons, senior executive officers, compliance officers, and legal departments must recognize the importance of properly preparing for and handling exams, in addition to cooperating with examiners during an examination. To work successfully with the examiners, firms should employ the right attitude and assemble the right team to address the issues raised during an exam.