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Tips for a Routine SEC Examination This list has been compiled by SEC3 employees including ex-SEC examiners and securities attorneys. It is not to be considered all inclusive and is provided to assist registrants with preparing for and managing an SEC examination. Depending on the type of examination and issues that may arise during the exam, a registrant may want to consider additional steps to manage an SEC examination. Before the SEC comes in: 1. Be Proactive The best way to avoid attracting additional SEC attention is to be very proactive and thoughtful about identifying conflicts and remediating those conflicts with strong policies, procedures and other risk controls, as well as making sure that the firm has a strong ethical culture from top to bottom. 2. Understand Your Risk Assessment Process Evaluate the risk assessment process within your compliance structure before the exam. The process should include the following: Business personnel, who have frontline responsibility for managing risk; Independent risk and control personnel (compliance, IT, ethics, risk and control) who must identify critical issues; and Internal audit personnel or third-parties, who provide independent verification and assess whether the control environment is operating effectively.

The SEC has stressed that these three lines of defense, when effectively utilized, protect investors, ensure the integrity of the capital markets, and promote capital formation. 3. Disclosure Consistency Ensure that your disclosure documents, your compliance manual and your actual practices and procedures are all consistent. 4. Do What You Say You Do Review all of the firms procedures and confirm that all the stated practices are actually being performed, and that you can prove it. 5. Stay Current Stay current, not just on new rules, but al review recent headlines and regulatory speeches. Monitor http://sec.gov/news/speech.shtml. As appropriate, ensure these are reflected in your annual review.
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New York Office: th 1140 Avenue of the Americas, 9 Floor New York, NY 10036 (212) 706-4029

6. Prior Exam Findings Ensure prior examination findings and internal audit findings have been remedied. 7. Correct Known Issues Correct known problems, or be in the process of correcting them. 8. Have a Test Run Perform a test run. Mock audits can go a long way in helping you, the firm and staff prepare for an exam. 9. Prepare Employees Train employees regarding what to expect during an examination; how to conduct themselves during an examination and in interviews with SEC staff and impart to them not to take offense if the CCO interrupts during an interview. Remind them to maintain a clean work space and mind common area discussions. Let staff know that when they have finished answering a question they should stop talking and that silence is OK people tend to keep talking to avoid the awkward silence. 10. Already Have a Team In Place Maintain a pre-exam team that has a SEC response process in place and that can ensure an effective and efficient response the moment you receive a SEC document request letter. Once the exam begins, the team should meet frequently (daily), track document requests, update management on the progress of the exam and remind employees that SEC examiners are onsite. Once the Onsite Portion of the Exam Begins 11. Point of Contact At the outset, try to maintain one point of contact who liaises with the examiners. All requests (and delivery of documents) should go through this person (typically the CCO). 12. Management Involvement Ensure senior management participates and supports the process. Ideally, they are part of the initial meeting with the SEC staff. 13. Be Courteous From the opening phase treat the examiners with respect and be courteous. This can set thet right tone and create a positive image of the firm. 14. Have a Compliance Overview Presentation During the initial meeting with examiners it is recommended that CCO and senior staff go through a PowerPoint presentation that provides an overview of the firm's compliance program
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New York Office: th 1140 Avenue of the Americas, 9 Floor New York, NY 10036 (212) 706-4029

including its risk assessment process and compliance culture. Include a list of firm training and recent compliance conferences attended. 15. Answer the Question and The Stop Talking As stated above, after an employee has answered the question they should stop talking - dont interject if there is silence after a verbal response, dont provide more information than necessary, dont speculate or mislead). 16. Provide a Comfortable Work Space for Examiners Facilities provided to the examiners should be conducive to carry out their functions effectively and in reasonable comfort. 17. Maintain Professional Relationship Throughout the examination, remain polite, convey mutual respect and establish a productive relationship. 18. Maintain Control of Exam Process Establish and maintain control of the examination by checking in periodically; asking if anything is outstanding and whether there is anything that requires clarification; and by responding promptly and accurately to requests. 19. Two People Present During Interviews Ensure two people are at all interviews and take notes. 20. Think Like an Examiner Put yourself in the examiners shoes. Ask, What can I provide to expedite the closing of the examination and to effectively respond to requests so they can do their job? 21. Carefully Consider Disclosing Problems You have Identified It is important to carefully consider disclosing problems you have internally uncovered. Consult with advisers as needed and use your resources. According to the SEC, nothing could be worse than for the SEC to find a problem through an examination or through a tip, complaint or referral that personnel in your organization knew about but tried to conceal. Document Handling Procedures 22. Maintain Meticulous Details of Deliverables Carefully track all document requests and responses numbering and dating them. Respond promptly to additional requests for information and documents. Ask that all requests be put in writing for the purposes of tracking and clarity.

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New York Office: th 1140 Avenue of the Americas, 9 Floor New York, NY 10036 (212) 706-4029

23. Organize Similar to Requested Format Organize information in a manner that corresponds to the information requests and in the format requested. Prepare folders that are labeled and/or provide items in electronic media. Convey the appearance of preparedness. 24. Freedom of Information Act (FOIA) Consider placing appropriate FOIA exclusion legends on sensitive materials. 25. Do Not be Afraid to Ask for Clarification Do not be afraid to discuss examiner document requests. Ask examiners to notify the CCO if they feel they are not getting the information they need. 26. Do Not be Afraid to Negotiate Request Items Dont be afraid to discuss with examiners requests that appear overly burdensome. Seek clarification if there is confusion and offer alternate records if you believe they are responsive to the examiners request. 27. Never Back-Date Never back date documents. Also, only create new documents if the SEC staff has made a request that entails creation of a new document or report. Be candid about corrections that have been made and whether new documents need to be created as well as the time it will take to respond to such a request. 28. Keep Duplicates Keep duplicates of everything youve provided. This will allow for quick reference later on if needed. 29. If Possible Do Not Provide Originals Unless Requested Provide copies of all documents when possible. Documents can be misplaced or lost. Exam Conclusion 30. Request an Exit Interview The SEC may not offer an exit interview if you do not ask. Having the SEC provide an overview of their initial findings can be useful and may provide an opportunity to demonstrate you are proactive with curing any agreed to deficiencies or weaknesses. 31. Understand Post Exam Protocols Discuss with the staff what the protocols will be subsequent to the onsite examination and the expected timing.

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New York Office: th 1140 Avenue of the Americas, 9 Floor New York, NY 10036 (212) 706-4029

About SEC3 Since 2003 SEC3 has been a leading provider of independent regulatory and compliance services. We take pride in maintaining our client relationships and delivering the highest levels of service. Our client base includes some of the most respected names in the financial services industry and ranges from large international firms to small firms with only a few key people. Our consultants include professionals who have served as SEC regulators, chief compliance officers, experienced securities attorneys and senior management of investment advisers, broker-dealers and fund administrators. SEC3's team brings together well over 100 years of auditing and operational due diligence experience, representing significantly more than 5,000 firm and fund reviews. We offer a full suite of high-quality compliance and operational due diligence services to hedge fund, private equity, real estate and other advisers as well as investment companies, broker-dealers, transfer agents, administrators and banks.

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