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Preparing for an SEC exam with a “first day” presentation

Jul 26, 2018

Topics: exams | SEC |

Securities and Exchange Commission (SEC) inspections are evolving in style and substance. With more information than ever before being collected from Form ADV and Form PF, examiners are coming to inspect firms after having completed more research and preparation. Therefore, it’s particularly important that firms engage proactively with supervisors and strive to make a good impression before the exam begins.

One key component of ensuring that your firm is prepared is creating and maintaining a “first day” presentation to give to SEC teams. Once considered a best business practice, the first day presentation has become more of an industry norm. In some cases, such presentations have been on initial examination request lists. They typically provide an overview of the firm’s advisory business and compliance framework and details on the firm’s compliance program and monitoring. They allow the firm to deal with specific issues upfront and can help clear out the underbrush to make the exam process more efficient. For example, a firm may want to include an update on any areas where the SEC has previously found the firm in need of improvement and discuss what the firm has done to remediate this area.

The first day presentation can include, among other items:

  • An overview of the firm (date founded, senior management, AUM, office locations, strategy, etc.)
  • Organizational structure
  • Overview of the advisory clients (e.g., private funds terms, etc.)
  • Investment process
  • Life of a trade
  • Key service providers
  • Discussion of key technology systems and cybersecurity program
  • Key compliance policies and testing that is conducted

It’s important that CCOs create the first day presentation in collaboration with key stakeholders across the business – and that those stakeholders review the presentation and sign-off on it. This is not only to ensure that stakeholders buy into the presentation, but also to ensure that the compliance policies and processes as described in the deck are accurate in practice. It is also important that a firm’s first day presentation be reviewed and updated on a periodic basis – perhaps every quarter, and more frequently if changes warrant.

CCOs should also create the presentation with other potential external stakeholders in mind as many investors and prospects are now asking to view these materials, or elements of them, as part of their due diligence document requests. While this is not a standard request yet, it is something that is happening with increased frequency.

In short, the SEC is changing the way it operates and engages with firms. As examiners’ tactics and resources improve, firms will need to be prepared to experience more frequent exams that may come at any time, announced or otherwise.