The Importance of Having a Mock SEC Exam

As has been widely reported, the SEC has significantly expanded its regulatory examination program, and continues to make efforts to strengthen its risk-based approach to the National Examination Program. The federal securities laws authorize the SEC to conduct examinations of all records maintained by SEC-registered firms at such times as the SEC deems necessary or appropriate in the public interest or for the protection of investors. The Dodd-Frank Act has had a significant impact on the SEC’s National Examination Program, by expanding the SEC’s examination authority and increasing its examination responsibilities in a number of ways. This has resulted in significant expansions to the SEC’s examination efforts particularly as it relates to detecting possible violations of the securities laws and regulations, fostering strong compliance and risk management practices, and providing the SEC with information about the effective implementation of its current rules.

Many firms are reacting by increasing their focus on risk management and compliance, and undergoing a mock SEC examination. By having an independent third party help assess operations and risk management, the firm is in a better position to address potential problem areas before they are uncovered by the SEC in “real” examination.

What to Expect: The mock examiner typically begins the process by requesting documents to review before an onsite exam at the firm’s office. While onsite, the examiner will interview personnel, review onsite systems and assess the adequacy of various safeguards and risk protocols. At the conclusion of the process, the firm will be issued a written report identifying deficiencies or gaps in the firm’s compliance program. From this, the firm can identify implementation steps to improve the compliance program and identify necessary resources to enhance the firm’s risk mitigation controls.

CCLS regularly conducts mock SEC exams for its clients. For additional information, please contact us at or by phone at (619) 278-0020.

By Zac Rosenberg, Compliance Consultant