After the recent bankruptcies of financial institutions such as FTX and Silicon Valley Bank, regulators have been blamed for poor investigative processes and enforcement regarding the regulations that financial organizations in the US must follow. However, our experience with the licensing and investigation of the Security and Exchange Commission seemed legitimate. From our perspective, they help protect customers.
Initially, obtaining Registered Investment Adviser (RIA) status in the US enables companies to provide personalized investment advice and comply with relevant laws. As a fintech startup operating in the investment advisory field, it is impossible to offer services in the US without RIA status, but it also helps build trust with potential clients.
In our case, we obtained RIA status about 18 months ago. The process involved drafting multiple documents and incurring costs of approximately $50,000 for legal services and filing fees, which took approximately three months to complete.
What our experience was like:
- We got a phone call out of the blue.
- Next step: an introductory meeting of two hours.
- The list of documents they asked for.
- Adjustments during the review and outro call.
At some point after gaining status, you can expect to be investigated by the SEC. The agency routinely conducts investigations to ensure that companies or individuals providing financial services or consulting comply with securities laws and regulations. Even if there are no claims against your company, these investigations can take place 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 length of the investigation process can vary depending on factors such as the size and complexity of the company being investigated. A complicated investigation can take six months or more.
We incurred costs of approximately $50,000 for legal services and filing fees; the exam process took about 3 months.
After conducting the investigation, the SEC will issue a letter detailing its findings. If no major issues are discovered, your company has two months to address any SEC concerns. It is important to take these findings seriously and promptly address any concerns to ensure compliance with applicable securities laws and regulations.
We got a phone call out of the blue
It was just an ordinary business day when a call came in to our company’s phone number and the speaker introduced himself as part of the SEC office in San Francisco, double-checked our company executives’ email information, and announced that we were under investigation as part of the standard practices with SEC. I was also told that we should soon organize an introductory meeting with their team.
I didn’t even know the SEC had an office in San Francisco.
Next step: An introductory meeting of two hours
When we arrived, there were three people representing the SEC and two representatives from our company: me and Chief Investment Officer Mike Stukalo. As I recall, our conversation was not recorded, which felt like a nice touch. I was impressed with 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 advisor status. They had a pretty good understanding of our product before the call.
After an introduction and basic questions, they asked very specific questions about exactly how our product worked to understand every little detail. Most of this two hour conversation was about a product and what it does. Everyone was very polite and nice: it felt more like a demo call with a potential client.