SEC Exam Success with the Ex-Examiners

SEC Exams: The Onsite Visit and Best Practices for Interviews with your Staff

MyComplianceOffice presents our co-hosts from NorthPoint Compliance as they discuss how to prepare your staff for interviews with the SEC and share the do and don'ts on an onsite SEC visit. 





Full video transcript available below:

Thank you Colleen. When Colleen and I were examiners, we primarily conducted surprise examinations where we would just show up in an investment adviser and surprise, you're being examined. Nowadays, it would be very unusual to have a surprise examination, and you would be more likely to receive a telephone call from the SEC indicating our intention to commence and examination of your firm. This is good for a number of reasons. First, if the staff will be onsite at your firm, one of the first things that you want to ask and that you should ask, is how many persons will be visiting the firm so that you can provide adequate and appropriate space for them.

There's a running joke that if SEC examiners are at your office, you should turn the heat on really high, or freeze them out. Although this has never happened to me as SEC examiner, I have heard some interesting stories from my former colleagues at the SEC. You want to make the staff as comfortable as you can, and if you have a smaller office and you have concerns, just inform the staff of this fact and tell them that you'll do your very best to make them comfortable, and then of course do your very best to make them comfortable.

Also, with advanced notice, you get the opportunity to notify all employees that the SEC will be onsite, and you can take time to sensitive them to a number of things and also set forth a number of roles while the SEC is on site. I'll give you some examples. You should tell your staff that no one should ever answer any business related questions from SEC examiners unless the CCO is present. If this were to happen to an employee of your firm, the employee should just indicate that he or she will communicate request to the CCO. You also want to impress upon the employees that it is necessary to have a clean desk policy.

A clean desk policy includes putting docs away and locking your computers prior to leaving workspace. Making sure that no one has post it notes around with their username and passwords on them, and also retrieving print outs from the copiers in a timely manner. In addition, you should tell employees to be cognizant of the conversations they have while they're in the public spaces in your office. You want to impress the SEC, and remind the employees to always act professionally while the SEC staff is at your office. Also engage in business conversations in private areas of the office.

Advanced notice also give you the opportunity to make sure that you're in compliance with your firm's own policies and procedures with respect to privacy. For example you want to make sure that all of your file cabinets containing sensitive information are locked. Another example would be making sure your server, if you do have one and it's onsite, making sure that it's in a secure location. Finally, I want to note that examiners may ask for a tour of your office. This is something that I would always do when I worked with the SEC, and you don't want there to be anything in your office that would cause concern to the SEC examiner.

We'll move on the SEC examination interviews. A large part of an SEC examination involves interviews of the CCO and other employees of the firm. There's a number of reasons that the staff of the SEC conducts these interview. In addition to asking questions simply just to learn more about your firm, they'll also be looking for a number of other things including whether the responses of you and your other employees of the firm are in consistent with your compliance policies and procedures, or in the documents that the SEC has already reviewed.

During these interviews the SEC also wants to see if there's any undisclosed violations or weaknesses in the internal controls that are mentioned during an interview. The SEC also wants to see if there are any inconsistencies between the responses of different employees, because this could be a signal to an examiner that there's a compliance violation, or weakness, or deficiencies. When being interviewed by the SEC, I would like to share with you a number of this do's and don'ts if you are interviewed by the SEC.

First I'd like to start with the don'ts. Don't ramble. SEC examiners just loves ramblers. While you should provide a full and clear response, once you're finished answering a question, just tell yourself to stop. I find not just in conducting interviews but for myself, and even social setting, there is a tendency to "fill up the silence". When I was an SEC examiner and until now if we prepare our clients for an SEC exam, in being the interviewer, I purposely create that type of silence in order to see if the interviewee will provide additional information and perhaps on a topic I did not even ask about. Unknowingly then, potentially providing me with or disclosing violations or deficiencies that might not otherwise has been disclosed.

Another don't is don't provide short yes or no answers. Remember to stay on topic and fully respond to the SEC questions, but this is just an SEC interview access point, it's not a deposition. Otherwise, in my experience at least, if the person I'm interviewing doesn't seem to be genuine, it's a very important characteristic to come across as genuine during an examination. When you're just saying yes or no answers to questions and not fully responding, it does seems disingenuous.

Another don't is don't make a joke. I know that it's common to make jokes in a less than comfortable situation, but cracking jokes is not a smart move during an SEC interview. You ought to remember that you and the firm take the examination process very seriously and you want to make sure this comes across in being interviewed by the SEC. My final don't is don't provide an answer to a question if you don't know the answer.

I have found in my experience that some folks when being interviewed feel as though the interview is a test or they might provide an answer just to be helpful, but it's a big don't to provide an answer if you're unsure. It's in your best interest instead to state that you have to check, or that you're unsure, but you'll make sure to find the person who can provide an answer to the question. I can go on and on about the mistakes that I've encountered as an SEC examiner during examinations, but these are some of the main pitfalls that I've seen time and time again.

Now I'll go on to the do's. Many of the do's are just the flip side of the don'ts, but there are some additional things to keep in mind. For example, do ask for clarification if the question is unclear. The last thing you want to do is provide information that is not responses to the question being asked. Do ask the SEC to be more specific if they ask a very broad question. Do be friendly and professional. I told you before that it's unwise to crack jokes and it's important to keep a serious tone. It's perfectly okay to approach the conversation in a pleasant way. Finally, the CCO should sit it on every interview. You'll want to take notes and be present in the event a response to a question that's incorrect. While you should never respond on behalf of the person being interviewed, it's okay for you to provide further clarification or correction if necessary.

Find out how MCO can help


Request a Demo



Download our four page Portfolio of Solutions to learn about;

  • Personal Trade Monitoring
  • Gifts & Entertainment
  • Political Contributions
  • Third Party vendor risk management
  • Trade surveillance
  • And more

Brochure Download