An onsite examination from the SEC can often feel like a surprise visit from your in-laws.  You wish you had more time to clean up before they arrived, you know they’re judging you the whole time they’re there, and you can’t wait for the moment you get to say goodbye.

And, after what seems like an eternity, that moment has come.  On the last day of an onsite examination, the SEC often conducts an “exit interview” which signals their impending departure.  At that interview, expect a discussion of the exam status, any outstanding information or documentation requests, and perhaps even a hint of what you might see on your report card (also known as the infamous “deficiency letter,” which I’ll get to in just a bit).  Even though you might be exhausted from their visit, use this time wisely and respond completely to their requests.  If, during the course of the exam, issues have already been identified and you’ve already got plans in place to address them, let the staff know you’re working on it before they leave your office.

After the onsite portion, the SEC will take back all the information they’ve gathered and will, in many cases, perform additional analysis.  They may even call you with more questions or ask to see more data.  Don’t be overly concerned if this happens, even if you get more than one round of comments or questions.  It’s all part of the process and may even present opportunities for you to put the SEC at ease about any particular issue before you get the formal summary of examination findings, the deficiency letter.

So, the deficiency letter.  Here’s what you need to know.  First off, while it’s possible to get a perfect score (i.e., a “no findings” letter), that’s not the norm, especially if you’ve had a routine examination. Those exams, as discussed previously, are designed to test all major areas of your compliance program, so there’s likely going to be at least one thing you can improve on.  Secondly, you might have to be patient.  By law, the SEC has up to 180 days to issue its letter.  Use that time wisely to anticipate what changes you’ll have to make, because once that letter comes, the SEC normally gives you only 30 days to respond.

When the letter arrives, read it carefully and respond fully, focusing on precisely how you’re going to address the deficiency identified.  For example, if the SEC noted a failure to adopt policies and procedures for filing and distributing Form CRS, don’t merely state that you will adopt such policies and procedures – provide a copy of them.  If you don’t agree with a particular finding, or don’t quite understand a comment, reach out to the staff by phone to try to resolve the issue before responding in writing.  And if you need more time to finish your response letter (perhaps to accommodate the schedule a of a key person), don’t be afraid to ask for it.  The goal here should be to send a single response that appropriately addresses all deficiencies.  And if you do that, instead of more comments and questions from the staff, you’ll likely get the letter you’ve been wishing for ever since this whole thing began – the notification that the exam is closed.

Let’s say you finally got that closing letter.  Take a moment, breathe, even celebrate. But here’s the thing – while the exam might be over, the work isn’t quite done.  Remember all those promises to take remedial measures you made in your response letter?  The time has come to make good on those, and that’s where Josh will pick up next time.  Thanks for reading!