SEC Examinations in 2016: Preparations and Expectations

OCIE Exam Priorities:

How to manage your SEC visit

On Jan 11, the U.S. Securities and Exchange Commission (SEC) released the Office of Compliance Inspections and Examinations’ (OCIE) priorities for 2016. Listen back as MyComplianceOffice and expert professional, Patrick J Burns of Advanced Regulatory Compliance (ARC) share how CCOs should manage a visit from the SEC. 

Patrick J. Burns 
Patrick J. Burns, Jr. is President and founder of Advanced Regulatory Compliance, Inc. He is the managing attorney with the Law Offices of Patrick J. Burns, Jr., P.C., a securities law firm dedicated to assisting industry members with their legal needs.


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How CCOs should manage a visit from the SEC

Now, during the examinations that take place onsite, I think what makes sense is for firms to take a look at doing a general introduction. By general introduction, I mean when the SEC exam takes place onsite, I always think that it's really extremely helpful to have the firm's senior management greet the examiner.

Even if the president of the firm is super busy, has a lot of things on his or her plate, I think just a simple meet-and-greet, a shaking of the hand of the examiner when they walk in the door and a 10-minute greeting really can set the tone for the entire examination. After the 10 or 15-minute mark, I think the president of the firm can certainly excuse him or herself and just make mention that they'll be available at various points if needed during the examination and then really hand things off to the chief compliance officer to handle the rest of the exam. I think what it conveys is the firm takes the compliance program and responsibility seriously. It shows that the top of the firm is interested and behind the compliance programs.

"If the SEC comes in and they get a warm and friendly greeting, I think that sets the tone for the rest of the visit"

I just think, having worked with a lot of firms over the last 20 years, everybody wants to feel good about their job. If the SEC comes in and they get a warm and friendly greeting, I think that sets the tone for the rest of the visit.

I've had clients over the years that didn't provide that type of welcome and it's been a tough or a hostile type visit, and, generally-speaking, the results of those exams are what you would  expect them to be. They tend not to go very well, and, now, we're essentially dealing with unnecessary issues that are created, so I just think it's the wrong approach.

Generally, our clients are not thrilled when they have to tie up their staff for a couple of days or, sometimes, a couple of weeks to do an examination, but it is what it is. It's mandatory. There's no way of getting around it. I think the best approach is just to make the best of it and try to minimize the downside, which is getting a deficiency letter that is more serious and more consequential. I think having an examination that runs very smoothly where you have a good working relationship with the examiner will prove very beneficial at the end of the exam.

When the SEC Exam starts

Now, when the exam starts, I think the CCO should be involved in all the meetings. That includes the one-off meetings that we talked about a little bit earlier. If the trader comes in to speak to the SEC or the president of the firm is speaking to the SEC, I don't think that there's any reason why the CCO can't be involved in those meetings. The only time might be if the CCO, him or herself, is in question and there's concerns that the SEC might want to address it privately with the president of the firm.

There's been a couple of cases recently where there's been severe compliance deficiencies like not running a compliance program at all where the SEC has taken some action against CCOs, but, by and large, I think that those cases are kind of the fringes where you're talking about CCOs that have worn more than 1 hat. They've been in business development and the CCO, which is not the greatest idea for an established firm or cases where there were compliance issues that were found and not addressed and they were of the serious nature. That's where the SEC has concerns with CCOs.

By and large, for routine deficiencies and things that they would expect to find when they come into a firm, I don't think that the CCO is greatly at risk. Most of those cases have been kind of blown out of proportion by the media. I really don't think that there's any kind of a witch hunt against CCOs taking place. Those are, as I mentioned, cases that are kind of on the fringes of the industry.

Now, 1 examination tip that I would provide which I think is really important is, before the SEC comes, I always think it's a great idea to have the CCO and educate all employees about the examination. Now, this can run the gamut from instructing staff on how to answer questions factually and in a concise manner, which I mentioned earlier. It's really important so that you don't start opening up new avenues for examination.

I also think some instruction on providing documents and what to gather and how to gather it is also very important. I also think that the CCO or somebody that's designated by him or her should review all documents that are gathered by staff before they're produced to the SEC. This is really important, to make sure that it's, number 1, it's responsive to the request, but also to make sure that it's not providing stuff that's unresponsive and opening up those new avenues of examination.

You also want to make sure that you don't start providing documents that are legally privileged and confidential. If that's the case and there's documents that are privileged, your inside or outside counsel should be consulted to make sure that you're not waiving any type attorney-client privilege.


Key Preparations for SEC Exams


  • Set the tone for the visit, If the SEC comes in and they get a warm and friendly greeting


  • Educate all employees about the examination and instruction on providing documents and what to gather and how to gather it is also very important


  • CCO or somebody that's designated by him or her should review all documents that are gathered by staff before they're produced to the SEC

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