The financial securities industry has an ever-changing regulatory environment. That’s why it’s critical that advisors are proactive about keeping up with the latest regulations, anticipating their implications for real-world scenarios, and understanding how to meet the expectations of the U.S. Securities and Exchange Commission (“SEC”).
Waiting to identify compliance gaps or potential violations at your firm until the SEC is on its way – or, worse yet, arrives unannounced – is never a good idea. Over the years, Jacko Law Group, PC (“JLG”) has received several afternoon calls from firms freaking out saying, “So and so from such and such regulatory agency is here!”
We understand that the process can be nerve-wracking if you haven’t taken the time to prepare for an SEC visit. But it’s not a reason to panic. Let’s consider what can be done ahead of time to mitigate risk and prep your team.
Review Documentation
SEC examiners often focus on what advisors are promising and disclosing throughout the entire client experience, as well as how their communications align with deliverables to prospective and end clients. Of particular interest to the SEC are advisory contracts, financial plan data, and trusted contact information.The preparation process begins with understanding that the SEC adheres to a very high level of detail when reviewing materials. That’s why it’s imperative for you and your firm to do the same. Make sure everything – even every phone call and every signature – is well documented.Also, in preparation for any SEC exam, make sure your compliance manual accurately reflects your firm’s practices and that your actions are consistent with your words. Failure to abide by internal policies and procedures can be noted as a deficiency.Your team should meet and discuss beforehand, to ensure alignment and synchronicity. A best practice is to make sure the most qualified person on the compliance staff acts as a liaison and provides all documentation to regulators.
Your Firm’s Representative and SEC Liaison
If you have the SEC, the Financial Industry Regulatory Authority (FINRA), or state regulators coming in, you’ll want someone who knows what everything is, where everything is, and who the right people are in various situations. If not, this could be a frustrating process during a regulatory visit. Alternatively, if that person suspects there are some issues that could be uncovered, we encourage firms to seek counsel before they talk to regulators. It is in your best interest to understand what the best response would be and how to best mitigate further risk.
Establish an Interview Policy
One critical, but often overlooked step at smaller firms is to ensure that your chief compliance officer or a compliance representative is present at every staff interview. Since most of the questions SEC examiners ask are compliance-related, it’s imperative to have someone who understands the nuances of regulatory compliance in the room.Firms frequently have employees who are subject to be interviewed by the SEC prepare by participating in mock exams. It’s a helpful way to review important information and reinforce the expectation that everyone should always be honest and forthcoming with SEC staff. Reducing uncertainty for your team can help them understand their own roles and responsibilities, alleviate exam anxieties, and ultimately protect your clients.Make sure everyone at your firm knows who the primary point person is and who needs to be present for interviews in addition to your CCO or compliance rep. Inform senior management and key personnel what to expect from the exam. Having a primary compliance point person who knows and conforms to the latest industry compliance standards and best practices always present for interviews is the best internal insurance policy a firm can have.
Consult with Outside Counsel
Examinations and inquiries can be a precursor to legal action. To sidestep that possibility and keep stress to a minimum, consider the value specialized legal counsel can provide by working with your team from the outset. When first working with clients in these situations, we often see them panicking about all the potential worst-case scenarios going through their heads. They think the one time they didn’t get a signature is going to come up in the exam and haunt them for the next few weeks.Experienced counsel understands the process and what is to come during an examination. Having counsel provides reassurance and peace of mind. Remember, regulators do not expect firms to produce everything immediately and they provide a doable deadline. Your firm has time and extensions are available. The experienced team at JLG understands the intricacies of regulatory examinations. For additional insight on how to navigate an upcoming visit from a regulatory agency or how to respond to Staff, contact us to learn how Jacko Law Group can help in your unique situation.
