Arc of the Process of Conducting a Mock Examination and the Types of Issues Reviewed (Part One of Two)

A large part of the examination “battle” is won or lost before an SEC examination begins. The problem, however, is the longest lead time a fund manager can realistically expect between notification and commencement of an SEC examination is one week. Therefore, the best way for fund managers to unearth and shore up existing risks is to voluntarily go through an SEC exam without having the SEC present. Mock examinations offer that opportunity, as they allow a third party – often a compliance consultant or law firm – to perform a similar review as the SEC, but with different goals and consequences. To help subscribers prepare for SEC and other regulatory examinations, this two-part series analyzes important factors for fund managers conducting mock examinations. This first article discusses the seven overlapping goals of mock examinations; the types of entities that perform mock examinations and the four areas of expertise they should possess; and the substance and process of a mock examination. The second article will consider whether a mock examination report should be delivered orally or in writing; contractual and legal strategies for maintaining the confidentiality of mock examinations; and considerations around disclosing the mock examination to investors. For more on SEC examinations, see “How Fund Managers Can Prepare for SEC Remote Examinations During the Coronavirus Pandemic” (Sep. 1, 2020); and “How CCOs Can Use a Sample OCIE Information Request Letter to Improve Their Compliance Programs” (Jan. 28, 2020).

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