SEC Describes Risk-Based Approach to Examinations

In a Risk Alert, the SEC Division of Examination described its criteria for selecting broker-dealers for examinations, the scope of an inquiry and the potential documents that might be requested. 

Division staff said they may consider, among other things: "(1) prior examination history; (2) supervisory concerns, such as disciplinary history of associated individuals or affiliates; (3) tips, complaints, or referrals involving the firm; (4) the length of time since the firm's last examination; (5) the firm's customer base; (6) products and services the firm offers; (7) financial notifications or alerts that indicate that the broker-dealer is experiencing financial stress; (8) reporting by news and media that may involve or impact the firm; (9) information filed by the firm with the SEC or with a self-regulatory organization; and (10) whether the firm holds customer cash and securities."

In addition, Division staff said they "may select for examination a specific office or branch of a broker-dealer based on the risk factors identified with that location."

In selecting examination focus areas, staff said they "may also consider whether the firm has been subject to an examination in a similar area by a self-regulatory organization" and the examination scope "may be adjusted during the examination based on information received and staff observations."

In the Risk Alert, Division staff provided an Appendix describing the types of documents and information that might be requested during an examination.