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. Previously, I reviewed Adams’ bon mots of: “Don’t panic“; “So once you do know what the question actually is, you’ll know what the answer means“; and “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.” Now:
Why should I want to make anything up? Life’s bad enough as it is without wanting to invent any more of it.1
DON’T: Create artifacts to respond to a request because you thought that is what the request required.
DO: Consider producing narratives.
Regulators sometimes seek information that simply does not exist in a document that you currently possess. This is not the time to prepare that document for your production as it may be misunderstood as a record maintained in your normal course of business. If you face this situation, consider responding to your regulator’s request with a narrative explanation in the cover letter to your production.
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.
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.
- Marvin the Paranoid Android never seemed to miss an opportunity to offer his outlook on life. See The Hitchhiker’s Guide to the Galaxy, Del Rey Edition for Kindle, at page 248. ↩︎