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SEC Risk Alert: Examining Broker-Dealers

Selection, scope, and document requests

听

flag flying in front of capital building

乐鱼（Leyu）体育官网 Insights听听

  • Expect More Scrutiny: The SEC Risk Alert on examinations is an indication to the market that examination and scrutiny will continue/expand now and going into 2025.听

  • Examination Preparation: Firms can utilize the information in the Alert (including the sample initial information request) to anticipate/prepare for potential/upcoming examinations.听听听

  • Firm Selection: Selection of firms for examinations are based on varying factors beyond exam history/timing 鈥� e.g., tips/complaints, media coverage, and the holding of customer cash/securities.听听听

_______________________________________________________________________________________________________________________________________

The Securities and Exchange Commission (SEC) Division of Examinations (Division) issues a that is intended to aid SEC-registered broker-dealers (firms) in understanding how SEC assesses risks and scopes examinations, including the selection of:

  1. Firms to examine
  2. Examination focus areas
  3. Documents to request, including a sample initial information request听

1. Firms to Examine听

Factors that may be considered in the selection process include:听

  • 听听听听Examination history

  • 听听听听Supervisory concerns (e.g., disciplinary history of associated individuals or affiliates)

  • 听听听听Tips, complaints, or referrals involving the firm听

  • 听听听听Financial notifications or alerts indicative of the firm鈥檚 financial stress

  • 听听听听Media reports involving or impacting the firm

  • 听听听听Customer base

  • 听听听听Length of time since the firm's last examination

  • 听听听听Associated risk factors (e.g., customer complaints) identified with specific offices or branches听

  • 听听听听Filings by the firm with the SEC or with a self-regulatory organization

  • 听听听听Whether the firm holds customer cash and securities

2. Examination Focus Areas

The Division notes that the scope of an exam varies based on multiple factors and may be adjusted based on information received and staff observations. Note: The Division may consider whether the firm has been subject to an examination in a similar area by a self-regulatory organization.

3. Documents to Request听听听

The Division includes a Sample Initial Information Request List in its Risk Alert. Information that may be requested includes:

General Information

Area

Example Documents

Organizational Information

  • Structure, affiliations, and control persons
  • Remote offices and branches
  • Employees
  • Committees (e.g., responsibilities, members, meeting frequency, meeting minutes)

Business & Operations

  • Firm鈥檚 business, including any recent significant changes
  • Clearing agreements
  • Website domain addresses
  • Compensation arrangements

Financial Information

  • Annual audited report(s)
  • Income statement(s)
  • General ledger(s)
  • Profit and loss statement(s)

Legal & Disciplinary

  • Pending and settled litigation, arbitration or proceedings
  • Regulatory inquires, complaints, investigations or subpoenas
  • Associated persons subject to special/heightened supervision or termination for cause

听

Supervisory and Compliance Structure

Area

Example Documents

Books & Records; Compliance & Oversight

  • Written supervisory and compliance policies and procedures
  • Oversight processes (e.g., compliance reviews, surveillance, and/or supervisory reviews)
  • Customer complaints and correspondence; process for monitoring (incl. e-communication)
  • Employee guidance and training; documentation of attendance

Branch Office Oversight

  • List of branch offices, including 鈥渄oing business as鈥� names
  • Description of process to perform branch office inspections
  • Any Profit and Loss statement by branch
  • Registered personnel within selected branches and compensation earned

Information Processing, Reporting, and Protection

  • Safeguards for the protection of customer records and information
  • Electronic access controls
  • Business continuity plan
  • Cybersecurity incidents or breaches (e.g., incident description, impact, and remediation)

听

Regulatory Requirements

Area

Example Documents

Sales Practices, Regulation Best Interest, Form CRS

  • List of products sold
  • Customer fee schedule
  • Written policies and procedures for Regulation Best Interest and Form CRS compliance
  • Customer account list
  • Conflicts inventory

Anti Money Laundering (AML)

  • Current or ongoing external regulatory investigations or inquiries into AML-related functions
  • AML written supervisory policies and procedures
  • List of customer accounts with risk rankings; date of onboard; most recent KYC review
  • Surveillance, monitoring, ad management reports
  • Most recent reviews performed over KYC, transaction monitoring, SAR handling

Net Capital and Customer Protection

  • FOCUS reports
  • Trial balance and balance sheets
  • Net capital computation, including all supporting workpapers
  • List of all bank accounts and customer checks
  • Changes in ownership equity

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SEC Risk Alert: Examining Broker-Dealers

Selection, scope, and document requests

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Get the latest from 乐鱼（Leyu）体育官网 Regulatory Insights

乐鱼（Leyu）体育官网 Regulatory Insights is the thought leader hub for timely insight on risk and regulatory developments.

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Meet our team

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Amy S. Matsuo
Principal, U.S. Regulatory Insights & Compliance Transformation Lead, 乐鱼（Leyu）体育官网 LLP
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Michael Sullivan
Principal, Advisory, FS Regulatory & Compliance Risk, 乐鱼（Leyu）体育官网 US
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Stefan Cooper
Principal, Advisory, FS Regulatory &Compliance Risk, 乐鱼（Leyu）体育官网 US
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Image of Amy S. Matsuo
Amy S. Matsuo
Principal, U.S. Regulatory Insights & Compliance Transformation Lead, 乐鱼（Leyu）体育官网 LLP
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Image of Michael Sullivan
Michael Sullivan
Principal, Advisory, FS Regulatory & Compliance Risk, 乐鱼（Leyu）体育官网 US
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Stefan Cooper
Principal, Advisory, FS Regulatory &Compliance Risk, 乐鱼（Leyu）体育官网 US
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乐鱼（Leyu）体育官网 Regulatory Insights is the thought leader hub for timely insight on risk and regulatory developments. Get the latest perspectives on evolving supervisory, regulatory, and enforcement trends.听

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 乐鱼（Leyu）体育官网 LLP does not provide legal services.

The information contained herein is not intended to be 鈥渨ritten advice concerning one or more Federal tax matters鈥� subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

漏听2025 乐鱼（Leyu）体育官网 LLP, a Delaware limited liability partnership and a member firm of the 乐鱼（Leyu）体育官网 global organization of independent member firms affiliated with 乐鱼（Leyu）体育官网 International Limited, a private English company limited by guarantee. All rights reserved.

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