SEC Exam Sweep of T+1

The U.S. Securities and Exchange Commission’s (SEC’s) Division of Examinations (EXAMS) announced in March its intention to conduct examinations and outreach in relation to amendments to Rule 15c6-1 under the Exchange Act and Rule 204-2 under the Advisers Act. This initiative aims to assess firms’ readiness to comply with new obligations in connection with the transition to T+1 settlement, which became effective May 28, 2024. In that Risk Alert, EXAMS included a sample list of information it might request as part of its examinations and outreach.

We have reason to believe the SEC has begun its targeted examinations of investment advisers both to assess their compliance with the new recordkeeping requirements in Advisers Act Rule 204-2 and to evaluate compliance by their broker-dealers with Rule 15c6-1. We have not yet heard about parallel examinations of broker-dealers. 

Among other things, examiners are likely to request:

• Policies and procedures that were affected by the conversion to T+1, including those related to the "allocation, confirmation, and affirmation (ACA) process"
• Amendments made to the firm’s policies and procedures to accommodate the T+1 transition
• Records that reflect the firm's "ACA process" as well as compliance monitoring and testing of the "ACA process"
• Contracts with the firm's broker-dealers
• Rosters of any committees relating to trading and any minutes of those committee meetings
• A list of vendors that participate in or are affected by the "ACA process" or the securities transaction settlement cycle and a description of their roles and how they affect or are affected by the "ACA process" or the securities transaction settlement cycle
• Books and records relating to trading and trading controls, in particular records of any trading away or stepping out the firm may have done in the context of a wrap fee program
• Risks and conflicts relating to the adviser’s trading operations
• Consultant, audit, and exception reports that relate to trading
• Training conducted regarding the transition to T+1 and proof of completion of the training
• Communications the firm received regarding the transition to T+1, including communications from the firm's clients, broker-dealers, and custodians

This information will inform the staff about the steps your firm took to prepare for the transition to T+1, the support you received from your broker-dealers, and your success so far in navigating the transition. The staff is also likely to inquire about niche issues addressed in the sample requests it published, as well as issues presented by the trading of private investments, publicly traded partnerships, wrap fee programs and third-party investment platforms to the extent that these issues are relevant to your firm. 

Our guidance

Firms should confirm now that all of the information listed above is complete and readily available in case they are chosen for an examination by the SEC. Additionally, it may be helpful to consult the sample document request letter EXAMS issued in connection with the transition to T+1 and the EXAMS Risk Alert issued in September 2023 that describes the SEC’s examinations program generally and includes general information that EXAMS is likely to request in order to understand the firm and its business.

How we help

With former SEC regulators and examiners as well as in-house senior compliance professionals on our team, we are expertly placed to help you prepare for an SEC examination. Our team simulates the process and experience of an actual SEC exam, analyzes the results, and provides constructive feedback and recommendations for meeting regulatory requirements and EXAMS staff expectations.

Additionally, if you are selected for an SEC exam, whether you are located in the U.S. or elsewhere across the globe, we can assist your firm before, during and after the exam by reviewing and organizing requested documents, assisting with deficiency letter response writing, and more.

Reach out to your ACA consultant to learn how our team can help you prepare for an exam, or contact us directly to learn how we can help you launch, grow, and protect your firm.

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