Meeting the challenges of a regulatory examination
The SEC examines about one-sixth of all registered investment advisers each year. Regulatory examinations are driven by various factors, such as emerging risks and trends, and responses to tips, complaints and referrals.
The SEC’s Office of Compliance Inspections and Examinations (OCIE) has made it clear that they intend to examine advisers who are newly registered, have never been examined, or have not had a recent examination. An examination involves a deep and thorough review of an adviser’s operations, compliance arrangements and recordkeeping, so it’s advisable to be prepared for a visit.
An SEC exam puts your investment and operational processes under intense scrutiny. Would you be ready for one?
Bovill’s SEC mock exam prepares you for the real thing
Deficiencies in a regulatory exam can negatively impact operational due diligence (ODD) reviews, and may result in reputational damage and/or a fine. Mock exams help identify areas of weakness for advisers ahead of an SEC examination. The goal of a mock exam is to minimize – or ideally eliminate – the number and severity of potential violations. Mock exams also provide essential practice for effective and efficient interactions with the SEC. This includes locating and producing documentation, delivering information in the requisite format and polishing the interview skills of key individuals.
Our approach to SEC mock exams
Bovill’s mock exam process assesses both the investment and operational aspects of your firm, including controls and adherence to compliance policies and procedures. We tailor the scope of the mock exam to your business and proactively work to ensure the mock exam meets your objectives. Mock exams can be broadly focused or targeted – just like a real SEC exam. Bovill’s mock exams are designed to specifically prepare investment advisers to better understand the SEC’s processes and priorities. A mock exam also prepares your staff for the type of interviews conducted by the SEC.
What you can expect
The diagram below illustrates the typical timeline for a broad-based mock exam, similar to an SEC “presence exam.” Timelines can be adjusted based on the scope, needs and size of the adviser
- Firm review
Prior to beginning any mock exam, we review publicly available information and documents to define the scope of the examination. The scope is driven by four areas: SEC exam priorities, recent SEC risk alerts, previous regulatory examinations and the type of adviser.
- Initial document request
We issue an Examination Letter that includes a detailed document request list. Bovill, like the SEC, tailors its requests based on the risks applicable to your firm. Requested documents usually focus on the following areas:
• General organizational and supervisory structure
• Compliance program and arrangements
• Portfolio management
• Trading and brokerage arrangements
• Performance advertising and marketing
• Financial records
• Private funds
- Document preparation
Once you receive the document request list, you’re responsible for producing documents by the stated deadline. The SEC often has aggressive deadlines for document production. A major part of the examination is testing the firm’s ability to produce records under tight timeframes. The document preparation process underscores the importance of a sound document retention policy
- Document review
We spend 2-4 weeks reviewing the documents provided to become more familiar with the details of your business. During the document review, we’ll develop and define topics to observe and discuss during the onsite portion of the mock exam.
- Onsite work: interviews and follow-up requests
The onsite portion of the review is designed for us to gain further insight into how your firm operates on a day-to-day basis. We do this through observation of and interaction with the firm’s key personnel and other employees. We interview select staff to identify risks, conflicts of interest and inconsistencies, as well as to assess preparedness to speak with regulatory authorities. The onsite portion of the review also provides you the opportunity to work through the logistics of a real exam.
- Examination report preparation
At the end of the mock exam, we provide a detailed findings report that addresses deficiencies.
Reports can be written or verbal, depending on preference. Written reports are provided initially in draft form to allow for clarifications before agreeing to a final version. In certain cases, we will make high level recommendations where there are opportunities for improvements. These might include changes to written policies and procedures, changes to processes, and follow-up training for specific individuals or the firm as a whole.
The debrief is a time to discuss the mock exam results. We’ll share an assessment of your execution of mock exam processes. The exam team will discuss deficiency findings and steps to rectify deficiencies as well as provide feedback on staff interviews.
Start your journey
Get in touch using the the form below and a member of the team will get back you as soon as possible.