Company: Private Fund Adviser
Location: U.S.
Financial Services Sector: Private Funds, Seed Capital
Background
Heightened Regulatory Scrutiny Expected
A newly registered investment adviser managing a private fund primarily funded with seed capital sought ACA’s expertise to prepare for a potential SEC examination.
The firm anticipated it would increase the private fund’s assets over time with external investors, and the firm’s investment strategy was expected to face heightened regulatory scrutiny under the new administration, necessitating a forward-looking compliance approach. To prepare, the mock examination was staffed with former SEC personnel and a long-standing consultant, providing a strong foundation in regulatory expectations and historical compliance challenges.
Challenge
New Adviser Concerns During a New Administration
Despite having experienced legal and compliance professionals, the firm faced several unique challenges:
- Regulatory uncertainty: The investment strategy was likely to be impacted by evolving SEC rules, requiring dual perspectives from both current and anticipated regulatory interpretations.
- New adviser status: As a recently registered adviser, the firm needed guidance not only on SEC rules and statutes but also on prevailing industry practices.
- Policy gaps: Key compliance areas, such as fees and expenses, the Custody Rule, and the Marketing Rule, required further development or refinement.
- Staff preparedness: The firm wanted to assess its personnel’s readiness for a real SEC exam and identify areas for coaching and improvement.
Solution
A Tailored Mock SEC Exam
ACA conducted a mock SEC exam tailored to the firm’s unique profile and regulatory risk exposure. The engagement included:
- Mock exam execution: A comprehensive review of the firm’s policies, procedures, and documentation, with a focus on areas likely to attract SEC attention.
- Dual-perspective analysis: ACA provided insights based on current regulatory standards and anticipated changes under the new administration.
- Findings and remediation: ACA identified several areas for improvement, including:
- Enhancements to the firm’s fee and expense policies.
- Updates to client agreements to ensure alignment with the SEC’s Whistleblower Rule.
- Identification of potential Marketing Rule violations and recommended corrective language.
- Interview feedback: ACA’s interviews with key personnel offered valuable insights into staff preparedness, highlighting staff members who would benefit from additional coaching.
- Presentation workshop: ACA collaborated with the firm to revise its “opening day” presentation deck, which proved instrumental during a real SEC exam just four months later.
Results
A Smoother Exam Process
- Exam readiness: The firm entered its first SEC exam with a clear understanding of regulatory expectations and a well-prepared team.
- Policy development: Key compliance areas were addressed proactively, thereby reducing regulatory risk.
- Staff development: Targeted coaching opportunities were identified, strengthening the firm’s culture of compliance.
- Strategic insight: The firm gained a dual perspective of regulatory expectations, positioning it to adapt quickly to future rule changes.
Conclusion
Compliance Assurance
This engagement laid the foundation for a long-term compliance partnership. ACA’s ability to combine regulatory foresight with practical, actionable guidance enabled the firm to navigate early-stage challenges with confidence and clarity.
Confidence in SEC Compliance
Looking to enhance your compliance strategy with guidance from former SEC professionals? Reach out to our SEC Mock Exam team to discover how a customized mock exam can help position your firm for regulatory success.