WASHINGTON - For chief compliance officers, dealing with an SEC examination can be a painstaking process with many pitfalls.
One inquiry from the Office of Compliance Inspections & Examinations could last as long as three months, according to Joe McGill, executive director and compliance officer at UBS Global Asset Management. McGill has fielded six inquiries from the Commission in the last year, as different regional branches have asked for written justifications of its policies and procedures. They will no longer take your word for it, he said.
Among the list of topics for these exams are market timing, closed-end funds, initial public offerings and anti-money laundering. Examiners will look to interview top-level executives during an exam, including the head of trading, chief investment officer and operations head.
"It's really important that you have one person serve as a conduit for what you're providing to the SEC," McGill told attendees at CCO best practices conference sponsored by IA Week and Fund Compliance Insider. McGill said that the process is very thorough, involves thousands of pages and as many as 75 items.
In preparation for an exam, ProFunds CCO Vincent Frye recommends going over prior deficiency letters because those topics will be the first items regulators look at. Frye also urged attendees to get an early start on their budget so they can be equipped with the necessary resources to respond to an SEC inquiry. "It's better to request more time to get them the information they want, than to provide misinformation."
McGill, who conceded he wasn't very tech savvy, recommended consulting a talented tech employee to really drill down and get the information needed to satisfy examiners. In some cases, he noted, it might be useful to hire an outside consultant to conduct an audit of internal controls.
In dealing with the board of trustees, the panel advised chief compliance officers to be careful in how information is conveyed. Rather than simply telling the board there is a problem, they said, CCOs should explain what they are doing to remedy the problem. Keep detailed records of deficiency letters and the firm's responses to them, McGill advised. Report them immediately, he added.
However, one panel member warned CCOs not to be bullied by the SEC when it comes to providing them with various records. "Don't give the SEC access to a copy machine," said Jack Murphy, a Dechert partner. He cautioned attendees not to let examiners control the process because they will ask for things for which they don't have legal entitlement.