On June 5, 2024, the SEC’s Division of Examinations released a risk alert regarding the examination of broker-dealers. The alert “provides information regarding what Division staff may consider when selecting firms to examine and areas of focus for the examination. It also provides the types of information, including documents, staff may initially request during an examination of a broker-dealer and includes a Sample Initial Information Request List.”
In this blog, we’ll highlight some of the key takeaways from the alert as well as how COMPLY can help to ensure your broker-dealer is exam-ready.
Key Takeaways from the SEC Risk Alert
Within the Risk Alert, the Division highlighted how they select firms for examinations, what risks they assess, and finally the documents and information they could potentially request as part of the examination.
As stated within the Risk Alert:
- Selecting Firms to Examine: Division staff may consider, among other things: (1) prior examination history; (2) supervisory concerns, such as disciplinary history of associated individuals or affiliates; (3) tips, complaints, or referrals involving the firm; (4) the length of time since the firm’s last examination; (5) the firm’s customer base; (6) products and services the firm offers; (7) financial notifications or alerts that indicate that the broker-dealer is experiencing financial stress; (8) reporting by news and media that may involve or impact the firm; (9) information filed by the firm with the SEC or with a self-regulatory organization; and (10) whether the firm holds customer cash and securities. The Division also may select for examination a specific office or branch of a brokerdealer based on the risk factors identified with that location (e.g., customer complaints or outside business activities of personnel working from that location).
- Selecting Examination Focus Areas: The scope of an examination, and consequently the documents requested, will vary from examination to examination depending on the examined firm’s business model, associated risks, and the Division’s reason for conducting the examination. The staff may also consider whether the firm has been subject to an examination in a similar area by a self-regulatory organization.
- Selecting Documents to Request: The initial request for information may include: (1) general information, which provides the staff with an understanding of the broker-dealer’s business and securities activities; (2) the written policies and procedures the firm has established, maintained, and enforced to address the firm’s securities activities; and (3) information for the staff to perform its own testing for compliance in various areas.
The Risk Alert also contained a “Sample Initial Information Request List” that highlighted the following categories of information which may be requested as part of an SEC Exam:
- Organizational Information
- Business and Operations
- Financial Information
- Legal and Discplinary
- Books and Records, and Compliance and Oversight Processes
- Branch Office Oversight
- Information Processing, Reporting, and Protection
- Sales Practices, Regulation Best Interest, and Form CRS
- Anti-Money Laundering
- Net Capital and Customer Protection
How COMPLY Can Help Your Broker-Dealer Prepare for an Examination
SEC Examinations are, by their very nature, a stressful endeavor. However, when you’re supported by COMPLY’s regulatory and compliance experts, you can rest assured you’ll be prepared for whatever the regulator asks of you and your firm.
Mock SEC Exams
COMPLY’s compliance professionals visit your firm’s offices and conduct a live mock SEC Exam through a series of exercises and interviews of the firm’s senior staff and personnel. Our compliance professionals hold a wrap-up meeting and deliver feedback. Topics covered during the mock session will include Risk Management, Trading Practices, Vendor Due Diligence, Form ADV Disclosure, AML procedures and others.
Audit Services
Given the pace of regulatory change and the mission-critical nature of getting compliance right, it helps to tap outside experts with decades of experience navigating the regulatory landscape. Clients count on us for accurate risk assessment, guidance in addressing weaknesses, recommendations for corrective actions, and ongoing support as business needs and regulations change.
Compliance Program Reviews
Within the last year, regulatory bodies have adopted over a dozen new rules with far-reaching implications for many firms. Having trouble staying ahead of the proverbial regulatory curve? You wouldn’t be alone.
Stay ahead of ever-changing FINRA, SEC, and state regulations. Our compliance experts execute a comprehensive assessment of your firm’s compliance program, testing it against applicable regulatory requirements and industry best practices to identify and remediate compliance risks.
Meet examination standards with ease. Schedule time to speak with one of our experts today!