SEC Re-Considering Advisor Exams

November 06, 2005

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Recently there have been several reports in various industry publications such as The Wall Street Journal and the Compliance Reporter discussing changes the SEC is making to its risk-based approach for advisor firm audits. While the SEC has not finalized the changes, it appears they are close to implementing an approach that would more actively monitor “low-risk” firms. Currently, the SEC divides advisor firms into “high-risk” v. “low-risk” firms with high-risk firms visited on a more frequent and regular basis. According to comments from the SEC, they would randomly select a sampling of low-risk firms each year as opposed to visiting low-risk firm once every five years. Depending on the type and severity of deficiencies found at the low-risk firms, the SEC may move away from visiting high-risk firms more frequently and audit all firms on a more balanced approach.

No matter what type of exam cycle the SEC selects, an advisor firm needs to be prepared for a regulator to show up on any day without prior warning. In other words, take the approach to always be ready for a regulatory examination whether it is an initial audit, a follow-up audit or part of an industry sweep. The best compliance programs are those that are not afraid of an SEC examination. By continually monitoring and supervising compliance procedures, well-run compliance programs are always prepared and actually welcome a regulatory examination. Is your firm ready for an examination? Could you survive the SEC? If you need help creating a compliance and supervisory program that is always ready for the SEC, give us a call today.

Posted by Bryan Hill
Labels: Regulatory Inspections