SEC Re-Considering Advisor Exams

November 06, 2005

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