Your compliance blueprint (part deux)

Not long ago we published what we called a “compliance blueprint“, ahead of an expected SEC sweep of US private equity firms this fall. Our advice was that GPs should compensate CCOs fairly, be honest about past compliance gaps with examiners and designate a point person to oversee communications with SEC inspectors.

Sources indicate onsite inspections can last anywhere from a few weeks to a couple of months. So here are a few tips to ensure that the SEC's visit is a brief as possible – and that any subsequent deficiency letters are kept to a minimum…

Set the right tone: Creating a friendly business rapport with examination staff sets the right tone for a positive inspection experience (insofar as such a thing exists). Chief compliance officers should ensure that meetings and interviews with SEC staff are run like clockwork and that any requested documents are produced in a timely fashion. Daniel New of Ernst & Young additionally advises GPs to ensure that examiners have internet access and good working space to carry out their inspection. 

Provide an overview of the firm: Create a document that provides SEC inspectors with a general rundown of the firm’s operations on day one. This overview should include details around the firm’s governing structure, compliance programme and business model. 

Meet and greet: In our first “compliance blueprint” we recommended senior dealmakers make themselves available to inspectors (even if that meant interrupting a summer holiday). In similar vein, the firm’s senior management should use their time with inspectors not just to say hello and answer questions as needed, but also to have a conversation about how they have instilled a “culture of compliance”. 

Do a trial run: An independent third party can create a mock SEC exam that highlights the firm’s compliance holes. New says these trial runs are done in the same timeframe expected by the SEC. Documents submitted by GPs will be fact-checked for completeness and accuracy of information, and employees can experience mock interviews to help prepare for potential questions inspectors might ask. 

Don't switch off too soon: Following the onsite visit, or “fieldwork”, the examination process may continue for several more months as exam staff return to their regional office. Continue to be prepared for document requests or communications with inspectors as they consider whether or not to produce a deficiency letter (and, according to our sources, it's rare for this not to happen). 

As before, good luck. Not that you'll need it, of course.