On June 5, 2024, the SEC published a Risk Alert outlining its examination strategy for broker-dealers, following an earlier Risk Alert for investment advisers. The key components of the broker-dealer Risk Alert are:
- The SEC considers a number of factors when selecting examination candidates, including prior examination history and/or disciplinary history; tips, complaints, or referrals; the length of time since the firm’s last examination; the firm’s customer base; notifications or alerts indicating that the broker-dealer is experiencing financial stress; and reporting by news and media that may involve or impact the firm.
- How the SEC determines the focus and scope of examinations, which varies from case to case depending on the firm’s business model, associated risks, and the SEC’s reasons for conducting the examination, as well as whether the firm has been examined in a similar area by a self-regulatory organization, such as the New York Stock Exchange.
- The SEC primarily reviews documents that help it to understand the broker-dealer’s business and securities activities; written policies and procedures the firm has established, maintained, and enforced to address its securities activities; and information enabling the SEC to perform its own testing for compliance in various areas.
- The Risk Alert follows the publication of the SEC’s Examination Priorities, which outlines the areas that SEC examinations tend to consider for different types of industry participants and discusses the risk areas that impacts those participants.
Broker-dealers, investment advisers, and other industry participants should familiarize themselves with these materials to be prepared to respond to an SEC examination request.
Please direct any questions or observations to Gunster securities law and corporate governance practice leader, Bob Lamm, or its banking and financial services practice leader, Greg Bader.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
About Gunster
Gunster, Florida’s law firm for business, provides full-service legal counsel to leading organizations and individuals from its 12 offices statewide. Established in 1925, the firm has expanded, diversified and evolved, but always with a singular focus: Florida and its clients’ stake in it. A magnet for business-savvy attorneys who embrace collaboration for the greatest advantage of clients, Gunster’s growth has not been at the expense of personalized service but because of it. The firm serves clients from its offices in Boca Raton, Fort Lauderdale, Jacksonville, Miami, Naples, Orlando, Palm Beach, Stuart, Tallahassee, Tampa Bayshore, Tampa Downtown, Vero Beach, and its headquarters in West Palm Beach. With more than 290 attorneys and consultants, and over 290 committed support staff, Gunster is ranked among the National Law Journal’s list of the 500 largest law firms and has been recognized as one of the Top 100 Diverse Law Firms by Law360. More information about its practice areas, offices and insider’s view newsletters is available at www.gunster.com
