What Exam Year Means for Financial Regulation
Exam year refers to the annual cycle in which financial regulators conduct compliance reviews of broker-dealers, investment advisers, and banks. The SEC's Office of Compliance Inspections and Examinations (OCIE) publishes its annual examination priorities each fall, outlining the focus areas for the upcoming cycle. In the latest published priorities, the SEC emphasized cybersecurity, artificial intelligence, and private fund advisers as top review areas. These priorities directly shape how firms prepare for exams and allocate compliance resources. For a detailed breakdown, see the SEC's official examination priorities page.
Exam year timelines typically align with the fiscal calendar, with firms receiving examination notices months in advance. The OCIE's annual report to Congress provides a summary of examination findings and enforcement actions from the prior cycle. In the most recent report, the SEC highlighted deficiencies in anti-money laundering programs and cybersecurity controls across multiple firms. This data helps investors and firms understand the current regulatory landscape. The full report is available on the SEC website.
Key Financial Metrics and Benchmarks During Exam Year
During exam year, regulators evaluate firm-level metrics such as assets under management, client asset safeguarding, and turnover ratios. For registered investment advisers, the SEC's Form ADV filing provides a snapshot of a firm's AUM, fee structure, and disciplinary history. As of the latest public filings, the top 10 SEC-registered advisers manage over $100 trillion in combined assets. These filings are searchable on the SEC's Investment Adviser Public Disclosure (IAPD) website.
Exam year also affects market benchmarks, as regulatory changes can influence trading volumes and asset valuations. The Financial Industry Regulatory Authority (FINRA) publishes exam findings that often lead to rule changes affecting market structure. In the most recent cycle, FINRA flagged issues related to best execution and off-channel communications. These findings are reflected in updated compliance obligations for broker-dealers. The relevant FINRA notices can be accessed on FINRA's official website.
How Companies Prepare for Exam Year
Internal Compliance and Technology Upgrades
Companies typically ramp up internal audits and compliance training ahead of exam year. Many firms invest in regulatory technology (RegTech) solutions to monitor communications and flag potential violations. For example, Tesla and SpaceX, as public companies with significant regulatory exposure, maintain dedicated compliance teams that align their internal controls with SEC and FINRA expectations. Their annual filings and investor presentations often reference these efforts.
External Audits and Third-Party Reviews
External audits are a core component of exam year preparation, with firms engaging Big Four accounting firms to review financial statements and internal controls. The Public Company Accounting Oversight Board (PCAOB) sets auditing standards and inspects audit firms annually. In the latest inspection cycle, the PCAOB identified common deficiencies in audit documentation and independence requirements. These inspections directly impact how companies prepare for their own regulatory exams. The PCAOB's inspection reports are published on its official website.