How to Navigate SEC Exams and Inquiries: Legal Best Practices for Fund Managers
SEC examinations and inquiries are a regular part of regulatory oversight for registered investment advisers (RIAs) and exempt reporting advisers (ERAs). With heightened scrutiny under recent rule changes, private fund managers must be prepared to navigate these exams with legal precision, proactive compliance, and well-documented internal controls.
This article outlines key legal strategies for preparing for, responding to, and managing SEC exams and inquiries effectively.
Why SEC Exams Matter for Private Funds
Regulatory Compliance: Demonstrates adherence to fiduciary duties and disclosure requirements
Investor Confidence: LPs expect rigorous compliance procedures
Operational Risk Mitigation: Identifies and resolves gaps in internal processes
Types of SEC Exams Fund Managers May Face
Routine Exams: Part of the SEC’s risk-based monitoring program
Sweep Exams: Target specific industry practices (e.g., ESG, side letters, valuation)
Cause Exams: Triggered by whistleblower complaints, investor disputes, or enforcement leads
Pre-Exam Preparation: Legal and Operational Readiness
1. Compliance Documentation Review
Up-to-date compliance manual
Code of ethics and personal trading policies
Form ADV Part 1 and 2 disclosures
Record retention and cybersecurity protocols
2. Internal Mock Audits
Conduct periodic dry runs with compliance consultants or legal counsel to:
Identify inconsistencies
Test data retrieval systems
Prepare staff for interviews
3. SEC Response Team Designation
Assign roles to:
Chief Compliance Officer (CCO)
General Counsel or outside legal advisor
Operations lead for document production
Best Practice: Maintain an internal SEC readiness playbook with checklists, contact lists, and timelines.
Responding to SEC Document Requests
The exam typically begins with a request list. Ensure:
Responses are complete, accurate, and timely
All disclosures are consistent with Form ADV
Data rooms are secured and version-controlled
Key documents include:
LP communications and marketing materials
Fee and expense allocations
Valuation policies
Side letter disclosures
Managing the Onsite or Virtual Exam Process
Prepare key personnel for potential interviews
Assign a single point of contact for SEC communication
Track all document productions and communications
SEC staff may inquire about:
Trade allocation practices
Custody of assets
Preferential treatment of investors
Conflicts of interest management
After the Exam: Deficiency Letters and Next Steps
Outcomes may include:
No Action: No material deficiencies
Deficiency Letter: Requires a written response and corrective action
Referral to Enforcement: For potential violations or serious deficiencies
Best Practices for Post-Exam Response:
Draft detailed responses with legal counsel
Implement corrective actions promptly
Maintain records of remediation for future exams
Regulatory Trends: What Fund Managers Should Monitor
Enhanced Form PF reporting requirements
Disclosure of fee transparency and GP-led secondary transactions
Cybersecurity and data governance standards
ESG marketing compliance
Prepare Proactively, Respond Strategically
SEC exams are not just regulatory checks; they are critical moments to validate a firm’s internal controls and compliance maturity. With a proactive legal framework and experienced counsel, fund managers can navigate exams efficiently and with minimal disruption.
For legal assistance with SEC exam preparation, response strategies, or compliance program design, contact our regulatory advisory team at 786.461.1617 to schedule a confidential consultation tailored to your fund structure.