The Office of Compliance Inspections and Examinations (OCIE) is the division of the U.S. Securities and Exchange Commission (SEC) responsible for the SEC’s National Exam Program. This division’s mission is to protect investors and ensure market integrity through its inspection and exam program. Results of the OCIE’s exam findings are what the SEC uses to identify and monitor risks, pursue any discovered misconduct, and inform their rule-making initiatives to improve industry practices. The OCIE maintains ongoing remote surveillance of SEC registered advisors in addition to the thousands of onsite examinations they complete each year.
In recent years the OCIE has had a much larger volume of registered advisory firms to supervise with currently around 13,000 firms to oversee. In 2019 the OCIE completed over 3,000 examinations. Since Altavista started operations in 2003, we have had one SEC exam and it was a phone-based exam in 2007. It was a smaller version of a full on-site exam but had similar qualities as far as what the examiners requested to review and how we responded to their requests and eventual summary of findings.
In February of this year, we underwent our first on site SEC exam. We thought you might find it interesting to read about how this exam process went. We received the document request letter dated January 28, 2020. Fairly typical of an examination request letter, it was 9 pages listing 47 categories of items the OCIE examiners wanted to review before arriving in our offices February 23rd to begin the onsite portion of the exam.
The requested items ranged from copies of our Compliance Policies and Procedures, samples of ongoing internal audits and reviews we perform on our reporting, billing, and safe guarding record keeping processes, proof of our cybersecurity and cyber fraud prevention program, copies of our firm financials and general ledgers, all of our staff member’s personal trading history, records of how we vet and oversee our vendors, a complete list of all the securities held in any of our clients’ accounts and proof of how securities are valued on our systems, our advisory agreements, sample investment policy statements, our client onboarding process, as well as documentation of how frequently our internal investment committee, compliance committee and management team meet.
For the onsite portion of the exam, on February 23rd three examiners arrived and made their home in our Asheville office conference room. It was a very interesting week for several reasons. This was the month US COVID19 cases were rising dramatically leading up to the CDC mandates requiring shelter in place/stay at home orders in March 2020. News feeds were unsettling, and our advisors were busy keeping our clients updated on the volatile markets. The morning of their arrival the examiners rode the elevator with our 8 months pregnant Mary Margaret Kiser. Realizing their mutual destination, introductions were made. Mary Margaret would go to the doctor later that morning and unexpectedly not return to her desk for a few months as her baby Miriam made plans to arrive three and 1/2 weeks earlier than estimated. To say our office, as well as our country, was humming with nervous energy would be an accurate description.
Pulling together the large amount of requested information both before and during the onsite examination was a time-consuming process resulting in a few late nights and early mornings. Fortunately we have built a rigorous process for how our now entirely paperless records are maintained, archived and safe guarded and the Altavista team came together making ourselves available for individual requests and conversations with the examiners as they worked through our information and asked questions to clarify their findings.
How did we do? Overall, our compliance culture proved to be strong. Examiner interviews with staff members all resulted in the same technical and experience-based responses which demonstrated that Altavista’s policies and procedures for managing and safeguarding our clients’ assets and their personal information is a way of life for our staff. In response to the OCIE exam findings, we took immediate corrective actions updating a few of our policies and implementing additional procedures to address some inconsistencies. The OCEI and the SEC are very transparent with their evaluation of a firm’s compliance program. They prioritize identifying if “tone at the top” reflects a commitment to compliance and will verify if appropriate resources are being devoted to a firm’s compliance program to make it effective. With our 10 person staff, we have a 2-person compliance committee (Quinn Schneider and me) regularly monitoring our operations and ensuring compliance with our processes designed to prevent risk.
Was this a stressful experience? Absolutely. However, even during the exam process, we felt a sense of relief knowing that as an independently owned advisory firm, our operations were being heavily analyzed and we would be learning where we need to further mitigate risks. I often say the Altavista team members make my job as Chief Compliance Officer so much easier because they each genuinely understand the importance of and uphold our commitment to safeguarding our clients’ assets and personal confidential information. We remain dedicated to a compliance program which detects potential risks and conflicts of interests and minimizes or eliminates them through regular monitoring and anticipatory processes.