After the recent failures of financial institutions like FTX and Silicon Valley Bank, regulators have been blamed for poor examination processes and enforcement regarding the regulations financial organizations in the U.S. must follow. However, our experience with the Security and Exchange Commission’s licensing and examination appeared legitimate. From our perspective, they help protect clients.
Initially, obtaining registered investment adviser (RIA) status in the U.S. allows companies to deliver personalized investment advice and comply with relevant laws. As a fintech startup operating in the investment advisory domain, it is impossible to offer services in the U.S. without RIA status, but it also helps to build trust with prospective clients.
In our case, we obtained RIA status approximately 18 months ago. The process involved preparing multiple documents and incurred expenses of approximately $50,000 for legal services and filing fees, which took around three months to complete.
What our experience was like:
- We got a call out of nowhere.
- Next step: an introductory two-hour meeting.
- The list of documents they requested.
- Adjustments during the review and outro call.
At some point after obtaining status, you can expect to be examined by the SEC. The agency routinely conducts examinations to ensure that companies or individuals providing financial services or advice comply with securities laws and regulations. Even if there are no claims against your company, these examinations can happen at any time to review your policies, services and records.
As part of the process, the SEC may conduct interviews, scrutinize existing policies and marketing materials, and request a detailed description of the financial services provided to clients. The duration of the examination process can vary depending on factors such as the size and complexity of the firm being examined. A complex examination can take up to six months or more.
We incurred expenses of approximately $50,000 for legal services and filing fees; the examination process took around 3 months to complete.
After conducting the examination, the SEC will provide a letter that outlines its findings. If no major issues are discovered, your firm will have two months to address any concerns raised by the SEC. It is important to take these findings seriously and address any issues promptly to ensure compliance with applicable securities laws and regulations.
We got a call out of nowhere
It was just a regular workday when a call came in to our company phone number and the speaker introduced themselves as a part of the SEC office in San Francisco, double-checked the email information of our company executives and announced that we were under examination as part of the standard practices with SEC. I was also told that soon we would need to arrange an introductory meeting with their team.
I didn’t even know the SEC had an office in San Francisco.
Next step: An introductory two-hour meeting
When we arrived, there were three people representing the SEC end and two representatives from our company: me and Chief Investment Officer Mike Stukalo. As I remember, our discussion was not recorded, which felt like a nice touch. I was impressed by how well prepared they were; they had clearly read our website, blog posts, marketing materials and ADV brochure, the primary disclosure document that we update each year as a company with registered investment adviser status. They had a pretty decent understanding of our product before the conversation.
After an introduction and basic questions, they asked very specific questions about how exactly our product worked to understand every little detail. The majority of these two hours of conversation were related to a product and what it does. Everyone was very polite and nice: It felt more like a demo call to a potential customer.