As we all know, the Securities and Exchange Commission (SEC), recently released their 2023 exam priorities, laying out the specific areas in which they plan to examine and audit registered financial firms. However, what hasn’t been known, up until this point, is how those exams will take place and what firms can expect when interacting with an SEC examiner.
During a recent conference, a panel discussed the SEC’s significant expansion of the scope of investment adviser examinations, including designating longer examination and scope periods, issuing lengthy document request lists and partially returning to onsite exams.
In 2023, the SEC examined 15% of registered investment advisers (RIA) and approximately 50% of broker-dealers in conjunction with the Financial Industry Regulatory Authority (FINRA).
In 2023, SEC examination plans include:
- Examination periods going back as far as three- or four-years, compared to the traditional 12- to 18-month look back.
- Document request lists can reach close to 100 items and include numerous follow-up requests.
- Allowed registrant response periods have not increased beyond the typical 10- to 14-days.
- Some exams are being conducted on-site, with the SEC deploying a hybrid examination approach which combines remote and on-site elements.
“In a time of growing markets, evolving technologies, and new forms of risk, our Division of Examinations continues to protect investors,” said SEC Chair Gary Gensler. “In executing against the 2023 priorities, the Division will help ensure compliance with the federal securities laws and rules…Our examination program continues moving forward and remains committed to furthering investor protection through high-quality examinations and staying abreast of the latest industry trends and emerging risks to investors and the markets.”
For those firms which may be subject to an SEC exam in 2023, preparation is key, ensuring your firm and its critical employees understand the responsibilities and implications which can emerge from an examination.
As part of the NRS® consulting solution, financial advisory firms can take part in a mock SEC audit, which entails compliance professionals visiting your firm’s offices and conducting a live mock SEC Exam through a series of exercises and interviews of the firm’s senior staff and personnel, following which our compliance professionals hold a wrap-up meeting and deliver feedback.
While not every firm is bound to be examined this year, it remains clear that the SEC plans to continue its expansion of scope and examination efforts to protect investors in the U.S. financial market.
About the Author
Max Mejiborsky
Max joined NRS in 2007 as a Consultant in the Investment Adviser Services Department and is based in our Massachusetts branch office. Max delivers comprehensive compliance solutions to all types of investment management firms, with special emphasis on private fund advisers, including hedge funds, funds of funds, private equity and debt funds, venture capital funds, real estate funds and other pooled investment vehicles.
Max earned his Juris Doctor degree Cum Laude from Boston College Law School in 2002. He is a member of the State Bar of Massachusetts.
After graduating from law school, Max accepted a corporate associate position with Choate Hall & Stewart LLP. During his tenure at Choate Hall, Max specialized in secured financing transactions, mergers and acquisitions, and bankruptcy litigation.
Max received his Bachelor of Arts degree Summa Cum Laude, graduating Phi Beta Kappa from Tufts University with majors in International Relations and Eastern European Studies.