Your firm is beginning to get in the groove since the shelter-in-place orders have been implemented. In the past, you have worked from home on certain days, but the transition to full-time teleworking, homeschooling, and pet sitting has been a challenging reality. Then surprise! You get a call from your regulatory coordinator that FINRA or the SEC has decided to conduct a regulatory exam of your firm starting now.
Don’t panic. Several of our clients have had regulatory examinations announced directly before and even during this time. At the end of March, the SEC’s Office of Compliance Inspections and Examinations announced that they would continue to do exams of firms remotely unless there was a necessity to go onsite. They have been working with firms to gather information on operational challenges and business continuity but still remain fully operational. Below are a few things your firm can do to be prepared for regulatory exams during the current, unprecedented times.
As noted above, both FINRA and the SEC understand the operational and continuity challenges during COVID-19 and the disruption that it has caused. Therefore, it’s important for your firm to understand your limitations and to communicate clearly and directly with your regulatory coordinator.
Electronic Documentation Requests
Over the past few years, FINRA and the SEC have transitioned to a more electronic platform to request and upload examination requests. This has saved time and resources for firms that maintain files electronically. It means that these firms do not have to print out records in order to prepare for a review. Depending on the records you have access to electronically, you may be able to conduct a large portion of the exam without stepping foot in your office.
Books and Records Limitations
If your firm is not approved for electronic storage, your primary books and records are in hard copy format. Again, communication is the key. The ability to access your records and the focus on the health and safety of both yourself and your team are important considerations to state upfront. Pull together what you are able to. Then, make a note to discuss any items that you must go to the office to obtain.
Communication With Supporting Vendors
This is generally the best practice when it comes to a regulatory exam. It is common for custodians to custom-create the reports in the format and fields requested by FINRA and the SEC. This often takes more time than may be given. Ask any supporting vendor for a timeline of completion. Communicate this information to the examination team and continue to gather what information you have available.
Putting Cloud-Based Filing to the Test
A regulatory exam is the perfect test of your firm’s electronic books and records organization skills. The ease or difficulty to pull books and records can shed light on the current process. For example, it can show ways in which the process and storage organization may be altered and improved.
Escalate, Escalate, Escalate
Finally, if you can’t start an examination during this time and your regulatory exam team wants to move forward, escalate this. Escalation parties may include the examination manager, the head of the office conducting the exam, or even the Ombudsman. An Ombudsman is an impartial, confidential, and independent resource that works informally to assist in finding solutions to issues or address concerns you may have. Firms might often overlook the FINRA Ombudsman as a resource that can provide support and impartiality.
If you have questions or need any expert consulting and guidance related to Regulatory Examinations, please contact our office.