My Crypto Lawyer
Introduction
Thank you for inviting me here today.
Before we begin, I am required to give the standard disclaimer that the views expressed today are provided in my official capacity as the Commission’s Director of the Division of Examinations but do not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.
It is always a privilege to engage with so many dedicated compliance professionals. While we come from many different organizations and many different roles, we share a common goal – promoting strong compliance programs that protect investors and support fair orderly and efficient markets. Those capital markets, America’s capital markets, are the largest and most liquid in the world. Their rise and continued expansion can certainly be attributed in part to our country’s embrace of innovation, the indominable spirit of American entrepreneurs, and our dynamic democracy. But it is important to remember that beneath those more ephemeral aspects of our capital markets lies a robust regulatory ecosystem that facilitates certainty, stability, and a level-playing field for investors and regulated entities alike.
Congress and the Commission set expectations for regulated entities through statute and regulation. To operate within that framework, is to benefit from the confidence, legitimacy, and trust that comes with being a regulated entity. But that benefit also carries a corresponding responsibility – the requirement to meet the legal and regulatory obligations that sustain that trust.
Congress understood that a regulatory framework cannot rest on expectations alone. For the framework to have meaning, there must be a means of ensuring that the requirements operate as intended. That is, in part, why Congress entrusted the Commission and its staff with the authority to examine the books and records of registrants to assess their compliance with the obligations that underpin our markets. What we do in the Division of Examinations is a manifestation of that fundamental aspect of capital market regulation.
So, while an examination may not always be the most welcome part of being a regulated entity, it is an essential part of the bargain of operating within a system built on trust, accountability, and the rule of law. But just because it is necessary doesn’t mean it is perfect.
So, what I would like to chat with you about today is the Division’s efforts to improve the examination process and your role in helping us do so. We intend to build on the foundation laid by prior generations of examiners in seeking to ensure that the Division is operating in a way that is both ACCESSIBLE and INTEGRATED.
At a time when conversations seem to increasingly involve discussions of frontier models, explainability, transformers and tokens, I’d offer that our approach in this space is grounded in something a little more simple and foundational – and that is the so-called “Golden Rule.” It may sound trite, but we should treat others as we would like to be treated.
Treat Others as You Would Like to be Treated
So, if I were a registrant, what would I want out of the Division of Examinations?
I think I would want clearly articulated expectations. Obviously, statute and regulation set the standards, but I would want to understand how I should engage with the exam team in the most productive way possible. I would want the Division to communicate to me the risks they have identified through their work and the trends they see that may be common but problematic. I would want to be treated in a similar fashion regardless of my geographic location. I would want the opportunity to clarify misunderstandings or provide additional information during the examination process. I would want consistent answers regardless of whether I consult someone in EXAMS or another Commission Division. There may be some other things I would want, but I think that is a pretty good list to start with, as many of those items align with feedback we have received from compliance professionals. So, what have we done to fulfil our responsibilities under the golden rule?
Annual Priorities
First, we seek to promote transparency by publishing our annual priorities. We share these priorities to encourage proactive compliance and clarity. During their development, we actively seek input from many stakeholders and industry groups. After collecting and evaluating all feedback, we carefully consider the information and conduct analysis before publishing our priorities so registrants can understand our main concerns and prepare more effectively for examinations. Starting in 2023 we aligned publication of our annual priorities to the beginning of the fiscal year to share our intentions earlier in the operationalization process.
Compliance Outreach
Additionally, we have become more intentional in holding regular outreach events. Over the last year we held a series of events to help investment advisers, broker-dealers, and transfer agents prepare for compliance with amendments to Regulation S-P. In May of this year, we held a regional seminar for investment advisers in Atlanta and in June we held a similar event in New York. We will continue to host these seminars which enable CCOs and other senior officers to gain information directly from their local SEC offices. Next month our Denver office will host compliance outreach events in Denver and in Salt Lake City. We also continue to host national outreach events, such as the upcoming IA/IC Compliance Outreach conference in November, where registrants can hear from the staff on specific topics and engage by asking questions.
Risk Alerts
To help communicate the risks we see through our work, we regularly publish risk alerts. These documents, which are available on our website, cover a variety of examination topics. Our risk alerts inform registrants of risks and examination observations in specific areas that the Division has identified. Communicating these trends allows firms to assess their supervisory, compliance, and/or other risk management systems related to these risks and observations, and make any changes, as may be appropriate, to address or strengthen their compliance programs. Recent alerts have included specific examples of typical document requests that registrants in different business sectors could expect to receive. Other risk alerts aggregate and anonymize findings from examinations. These risk alerts aim to serve as a useful resource to help firms improve their systems, policies and procedures.
Responding to Industry Feedback
Our Division also actively engages with industry groups. Over the past year, we received feedback indicating that some registrants feel there is limited opportunity to discuss or clarify potential findings before an examination concludes. We have taken this input seriously. The examination exit conference should provide registrants with an opportunity to engage with the examination team and review findings. We encourage robust dialogue; if you believe an observation or deficiency is unwarranted, the exit conference is an excellent occasion to raise your concerns. Our teams are not perfect. It is possible that something was overlooked or that a procedure or policy was not produced which could affect a finding.
We have also heard that some registrants have concerns that exam close out letters that note deficiencies do not articulate a specific roadmap to remediate the potential instance of noncompliance. Given that we are not merit regulators this is by design. In most instances, firms are in the best position to develop their own remedial measures based on their legal obligations. The examination teams are not intended to provide legal advice or consulting services.
Enhanced Internal Communication
Our work to be more accessible and integrated goes beyond just reaching out to registrants. We’re broadening our approach by not only better connecting with regulated entities, but also working to enhance our interoperability with other SEC divisions, particularly those responsible for policy development. While those of us working at the SEC understand the distinctions between the SEC’s various offices and divisions, investors and registrants deserve a unified message. That’s why we are working diligently to ensure EXAMS collaborates closely with other offices and divisions within the SEC. Several adjustments have been implemented to ensure more seamless integration within the SEC.
Knowledge Exchanges
EXAMS is actively sharing relevant insights with key policy groups through regular knowledge exchange sessions. We have started regular sessions with both the Division of Trading and Markets and the Division of Investment Management. We engage in discussions on topics of mutual interest, including insights from our examinations, to encourage alignment and identify opportunities for policy divisions to leverage our front-line staff’s expertise.
Rotation Program
We have also launched a rotation program where EXAMS staff are temporarily detailed to policy groups, and policy group members can rotate to EXAMS. This gives the policy divisions greater insight into how registrants seek to comply with rules and regulations in practice.
Additional Efforts
EXAMS has also implemented policies and systems designed to promote consistency. We consult with the policy divisions regarding novel or unique issues. Furthermore, EXAMS has introduced measures to improve feedback mechanisms, aiming to minimize discrepancies that may arise due to geographic location or supervisor group.
Examination Process Handbook
To assist registrants engage with exam teams in the most productive way possible, I’m pleased to make an announcement here today: Later this month we will be publishing a modern and expanded replacement to our previous EXAMS Brochure. It will be clearer, more practical, and built around the questions we hear most often from our registrants. The document is designed to align expectations and create predictability, and it is filled with helpful resources for registrants to consult before and during their exams. It offers a concise and understandable overview of what to expect during an examination, as well as guidance on steps to take if any issues arise. You should expect publication prior to the start of the new fiscal year.
Taken together, all these efforts represent a substantial investment in enhancing the examination experience and ensuring the SEC is responsive to risk in the markets. While we’ve dedicated a lot of time to these efforts, we remain committed to continuous improvement and welcome your feedback. Now that we’ve run through what we, in EXAMS, have been doing it is only fitting that we turn to the other side of the equation.
It Takes Two to Tango
What can you do as registrants to assist the process. Even if the Division and its exam teams execute all of the activities I’ve just covered with exquisite precision we control only half of the exam interaction. As you, and the registrants you represent, are an important partner in the process, it seems fitting for me to share with you some observations that may lead to a smoother examination process.
Set the Right Tone
Your examination will likely begin with a phone call from the Exam Manager to your Chief Compliance Officer or regulatory liaison. When you receive that first call from an SEC examiner, my advice is simple: be responsive, be prepared, and be professional. The call does not need to be adversarial. Examiners are not looking to make the process more difficult than it needs to be. They have a job to do, they are often working under deadlines, and their efficiency is critical to our ability to allocate scarce resources. They do appreciate responsiveness, honesty, and professionalism. Courtesy, transparency, and communication can go a long way towards setting the right tone and building a productive working relationship that can last throughout the examination.
While our exams are guided by a risk‑based, data‑driven process, it’s important for firms to know that being selected for an SEC examination is not, in itself, a signal that something is wrong. We make sure we are keeping pace with an evolving industry by reviewing a range of factors – such as a firm’s business activities, recent organizational changes, time since the last exam, or broader market developments. Many firms are selected because they fall within a category we are reviewing that year, or because periodic exams are part of maintaining a healthy regulatory environment. Tips, complaints, or regulatory filings can also inform our selections, but even these are often simply starting points for understanding a firm’s operations more deeply.
Above all, we hope our examinations support strong compliance programs, promote transparency, and help firms protect investors. When we come onsite, our goal is to learn, engage, and offer feedback – not to assume misconduct. We want registrants to feel comfortable that an exam is a normal part of being a regulated entity and an opportunity to strengthen their practices.
Come Prepared
One of the most helpful things a firm can do at the outset of an examination is to come to those initial meetings prepared. Be ready to provide a clear overview of your organization, your business lines, your risk areas, and your compliance program. Having the right people in the room and being able to explain how your business operates in practice helps set the foundation for an efficient and productive examination.
If a registrant can confidently walk us through their procedures and have real familiarity with compliance requirements, that is a strong signal to us on how seriously your firm takes its regulatory responsibilities. This clarity not only showcases a strong compliance culture but also reassures examiners that the firm prioritizes proper training and consistent implementation of its policies throughout the organization.
I would also emphasize that basic questions from examination staff should not be interpreted as a lack of understanding. Examiners often ask foundational questions because we want to make sure that our understanding of your firm, your operations, and your compliance framework is accurate and aligned with your own. Taking the time to establish that shared understanding early in the process can help avoid misunderstandings and allows the examination to focus on the areas that matter most.
Engage with the Team
Another important way firms can help facilitate a smooth examination is by engaging with the examination team throughout the process. Our goal is to understand your business, your risks, and your compliance program. The examination is not just an opportunity for us to identify areas for improvement – it is also an opportunity for you to explain the work your compliance program is doing well, the controls you have put in place, and the ways your firm is working to protect investors. The more we understand the context behind your program, the more meaningful and efficient our review can be.
That same principle applies when challenges arise during the examination. Do not be afraid to ask the examination team questions or for clarification. For instance, if you receive a document request that is challenging to fully address within the allotted timeframe, avoid simply informing the examination team that it cannot be completed. Instead, consider requesting an extension in good faith or discuss with the examination team whether partial or rolling production might be acceptable. Alternatively, explore whether the document can be provided in a manner that meets the examination team’s needs without requiring extensive formatting or additional work on your part.
Likewise, if someone who is important to the examination will be unavailable during on-site interviews, let the team know in advance so we can work together to find a solution. Open communication allows everyone to focus on the substance of the examination and helps create a more productive process. How you and your colleagues choose to approach the examination is going to have a significant impact on the exam’s efficiency.
We’ve now walked through what we as regulators have done and what you as regulated entities can do to facilitate a smooth interaction. Now let’s take a moment to talk about the small number of situations when things may go a little awry.
Two Wrongs Don’t Make a Right
Importance of Mutual Respect and Professionalism
I would emphasize the importance of both sides approaching the examination process with professionalism and respect. The Division of Examinations is a large organization, with slightly less than 1,000 professionals, and while we work hard to promote consistency and ensure that registrants have a fair and consistent examination experience, our examiners are human beings. We are not robots. Each examiner brings their own expertise, perspective, and communication style to the process. They are experienced and dedicated professionals, but we are not perfect.
If you have issues, please talk to your examination team lead or their Assistant Director. And, if for any reason, the examination team does not reciprocate this respect and professionalism, I and the other senior leaders of the Division want to know about it. Please feel free to contact us should the necessity arise.
At the same time, it is important that the registrant maintains a constructive and professional relationship with the examination team. Concerns and disagreements will inevitably arise during examinations, and we welcome thoughtful dialogue and feedback. But approaching the process with an unnecessary adversarial mindset can make an already complex process more difficult for everyone involved. Like any interaction between people, the tone we bring to those conversations can influence the overall tone of the process. Treat the examination team with the same professionalism and courtesy that you expect in return.
A Good Exam is a Collaborative Exam
I want to emphasize that a successful examination is a shared effort. We have and will continue to work hard to live up to our side of the bargain. Our objective is to conduct thorough, fair, and efficient examinations. That process works best when the examination team and the firm approach it with a spirit of collegiality, communication, and collaboration. We recognize that examinations require time and effort from your teams, and we appreciate the commitment that compliance professionals make every day to building strong compliance programs.
At the end of the day, we have an important common goal: protecting investors and promoting strong compliance practices. The best examinations are those where we can have open and constructive conversations, where firms feel comfortable explaining their business, and where we can work together to address issues and identify opportunities for improvement.
Thank you for the work you do and for your time this morning. We look forward to continuing the dialogue.
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