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Expect Focus Life Insurance, December 2017

SEC Exam Staff: “Surprise, We’re Back”

Financial Services Regulatory   |   Insurance   |   Life Insurance & Financial Lines   |   Securities & Investment Companies   |   December 29, 2017
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In August, Kevin Kelcourse, the associate director for examinations at the SEC’s Boston Regional Office, confirmed that his office has been making "surprise" examination visits to registered advisers in the region. This departs from the typical way in which SEC staff initiate exams – by sending firms a document request list and specifying a time, usually a few weeks later, for an onsite inspection. For many years, surprise examinations have usually occurred only if the staff believed that malfeasance had occurred or was ongoing at a firm.

Recently, however, reports of surprise visits have revealed that while onsite, the SEC has requested to speak with chief compliance officers and, in some instances, made document requests. Kelcourse, whose remarks were delivered to an industry news outlet, stated that by catching firms off guard, the SEC hoped to gain a better perspective on how firms operate when they think nobody is watching.

Although these visits have created some concern throughout the industry, out of the 220 exams initiated by the Boston office in 2017, only about a dozen were unannounced. Kelcourse reportedly clarified that no particular type of advisory firm is being targeted as part of this surprise exam initiative. Nor is it apparent that the surprise examinations focus on any particular type of adviser activities about which the staff may be especially suspicious.

Accordingly, it is unclear how the Boston regional office is deciding which advisory firms to surprise or whether other regional offices will follow suit.

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