Your day was going great. You helped a client with a particularly complex situation. Another client submitted the paperwork to transfer accounts to your firm. You did not have to deal with a bulldozer trying to demolish your home.
Then you received a message from a “@sec.gov” or “@finra.org” email address, which asked you to access a portal for additional information. Or you received a letter from your state regulator. You learn that your regulator opened an examination of your firm and seeks a comprehensive list of documents and information in two weeks.
Now what?
Strangely enough, and while I am sure that this was unintended, and it is certainly not a part of BBC radio broadcasts and films of the book, the late Douglas Adams offered a number of tips for handling regulatory exams in The Hitchhiker’s Guide to the Galaxy. One of them is:
Don’t panic.1
DON’T: Panic.
DO: Recognize that regulators . . . well, regulate.
It is natural for your pulse to quicken, as after all, regulators generally do not contact registrants simply to see how things are going. However, examinations are common. To paraphrase Hyman Roth in The Godfather II, this is the business we chose.2 Try to find out if your regulator has launched a “routine” or “cycle” examination, meaning that the regulator has appeared in the normal course of business, or a “cause”, meaning that the regulator is responding to a customer complaint or some other event. This may help you read the room.
Of course, The Hitchhiker’s Guide to the Galaxy is supposed to be fun. As noted in its foreword, Adams “left sentences that will make you laugh with delight as they rewire the back of your head.” And, of course, there is nothing fun about a regulatory exam. That said, things that are funny often contain kernels of truth or wisdom. While I am sure that Adams would be appalled that his work was analyzed in this context, his kernels in The Hitchhiker’s Guide to the Galaxy are helpful principles in responding to regulatory exams.
More to come . . .
Don’t panic and please contact me at www.ryanpsmith.com or 571.317.0605 if you have any questions or seek assistance with a regulatory matter involving the SEC, FINRA or a state regulatory agency.
Because you want to spend more time serving your clients, not your regulators.