The Secret Sauce: Ingredients for a Successful SEC Exam

By Colleen Kelly, Managing Director

The potential consequences of an unsuccessful SEC examination include a significant fine, an enforcement action, reputational damage, increased frequency and duration of future exams, and the diversion of employees from their core responsibilities to exam-related tasks. Based on Chenery’s experience successfully navigating clients through numerous SEC exams, we have found that success hinges on three key elements: organization, preparation, and experience.

Organization
An organized process for SEC Exams is not just a matter of operational convenience—it is an absolute imperative for regulatory success and business resilience.

A well-structured SEC Exam response process reflects a firm’s commitment to regulatory compliance and high standards. A defined workflow for communication, document collection, and review ensures that responses to SEC requests are accurate, clear, and timely—three criteria regulators scrutinize.

Reducing Risk and Enhancing Credibility
A systematized approach—with explicit roles, workflows, and real-time tracking—demonstrates to the SEC that the firm has robust internal controls and a culture focused on compliance excellence. Conversely, without an organized process, firms risk missing critical deadlines or providing incomplete materials, which can inadvertently signal internal weaknesses or non-compliance to regulators.

Steps to Success
Key elements of a thoughtful SEC Exam process include:

• Communicate the exam notice and expectations to staff to foster collective readiness.

• Create a detailed log and workflow for requests, ensuring responsible parties and deadlines are clear.

• Leverage technology—such as cloud-based document management—for efficient, auditable submissions.

The Payoff: Efficiency, Confidence, and Stronger Outcomes
When a rigorous process is prioritized, internal teams will collaborate seamlessly, documentation will be complete and accessible, and review cycles are swift and effective. This not only improves the chance of a smooth examination but also provides peace of mind for executives, compliance leaders, and stakeholders alike.
 
Preparation
Just as an athlete requires advanced training and preparation to excel in a sport, an Adviser requires preparation and training to ensure they are ready to put their best foot forward during an SEC exam. The following best practices have proven instrumental to prepare in advance for an SEC exam.

Mock Exams
Conducting mock exams helps to identify potential gaps in compliance, familiarizes employees with the types of questions that they may encounter in an actual exam and ensures the documents requested can be retrieved in a timely manner.
 
Annual Review Process
Implementing a robust annual review process ensures policies and procedures are regularly reviewed and updated to ensure compliance with current regulations and SEC priorities.
 
Employee Preparation
Providing targeted coaching and training for Adviser employees who may be interviewed by the SEC staff ensures they are well prepared and can clearly and succinctly respond to the SEC staff.

Experience - Utilization of Experts
An Adviser should not navigate regulatory compliance alone. A compliance professional, whether a consultant or outside legal counsel—with demonstrated experience guiding clients through SEC examinations can be invaluable. In a best-case scenario, the compliance expert will have an established relationship with the Adviser well in advance of the exam. An experienced compliance professional will add value by:  

• Developing effective policies and procedures and a strong overall compliance program in advance of the exam, which will demonstrate a strong culture of compliance during the exam.

• Ensuring the Adviser is compliant with regulatory requirements and has effectively mitigated material risks and conflicts of interest, which will lessen the risk that SEC examiners identify deficiencies during the exam.

• Helping organize and preparing the Adviser utilizing the methods described above (ex. mock exams, annual reviews, organization of files, coaching staff etc.)

• Leveraging their experience from other exams to provide their best advice on key questions and issues that arise during the exam.

Conclusion
Success in an SEC Examination hinges on meticulous organization, thorough preparation and strategic use of expert resources enabling firms to confidently navigate the examination process and demonstrate a robust compliance culture. Chenery Compliance Group has a proven process and track record of successfully navigating clients through SEC exams.