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 have discussed “Don’t panic“ and “So once you do know what the question actually is, you’ll know what the answer means“ in previous posts. Another tip is:
I don’t know what I’m looking for . . . [b]ecause . . . because I think it might be because if I knew I wouldn’t be able to look for them.1
DON’T: Rush to meet a production deadline.
DO: Plan your response.
It is natural to want to produce your responsive information as quickly as possible. You want to show the regulators that you run an organized, compliant business. You also have your clients to serve. However, I was a regulator — and conducted and supervised a number of investigations — and can assure you that you do not get any bonus points for submitting your response early. Take time to survey the documents and records that your firm maintains, think about how these might meet the pending requests and plan how you will execute your response. You can start today by organizing your records in a clear, concise manner. There is nothing worse than trying to cull through various network drives, or worse, archived e-mails to find the artifacts that you know exist and are responsive to your regulator’s request.
Also plan when you can execute your response. Regulators are notorious for imposing very demanding deadlines that sometimes strain credulity. If you cannot meet your regulator’s timeline, then under most circumstances it is perfectly acceptable to seek a rolling production in which you provide the readily available documents and information by date sought and other documents and information at a later time.2 Be sure to include time to perform an adequate quality check on the information you submit. Once produced, the information is no longer in your control. Also be sure to include time to prepare a cover letter and any needed narratives.
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.
Please contact me at www.ryanpsmith.com or 571.317.0605 if you don’t know what you are looking for – or have any other 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.
- See The Hitchhiker’s Guide to the Galaxy, Del Rey Edition for Kindle, at page 97. ↩︎
- Adams was also quoted as saying “I love deadlines. I love the whooshing sound they make as they go by.” (See Neil Gaiman’s Foreword “What Was He Like, Douglas Adams.”) I do not recommend that you take this advice. Meet the deadline in some fashion. ↩︎