The typical SEC examination will reveal some compliance deficiencies or internal control weaknesses at the firm. When the firm’s compliance or internal control failures are deemed serious, such as when investor funds or securities are believed to be at risk, the SEC examiners may refer the matter to the SEC’s Division of Enforcement.
The key to surviving an SEC examination is preparation. One of the most effective ways an investment adviser can ensure such preparation is through a mock examination or similar exercise. A mock exam, which is a simulated regulatory examination of an investment adviser conducted by a compliance professional, is ideally conducted before an investment adviser receives notice from the SEC of an examination to ensure the firm is prepared to respond to an SEC examination in an effective manner.