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. I previously reviewed “Don’t Panic” in Part 1. Another is:
So once you do know what the question actually is, you’ll know what the answer means.1
DON’T: Speculate about what the regulator seeks.
DO: Understand the regulator’s requests.
Your regulator does not understand your business like you do. Moreover, the regulator can make mistakes just like anyone else. As such, you may find yourself staring at one or more requests that do not make sense or simply do not apply to your business. If so, a quick meeting with your regulator could help clarify or eliminate certain requests. It is also an effective way to start establishing your bona fides with your regulator.
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.
If you don’t know what the question is, or otherwise need assistance with a SEC, FINRA or state regulatory exam, then please contact me.
Because you want to spend more time serving your clients, not your regulators.
- See The Hitchhiker’s Guide to the Galaxy, Del Rey Edition for Kindle, at page 121. In this passage, the supercomputer Deep Thought explains how it came to its legendary answer of “42”. ↩︎