United States: Navigating The Challenges Of Regulatory And Enforcement Actions

Developing a coherent and risk-based response strategy in advance of a regulatory examination or investigation can go a long way in mitigating the disruptive impact that these encounters often have on financial services institutions.

Increasingly aggressive and targeted actions by regulators around the globe are an expanding risk that can tax even the most vigilant compliance programs. Strategies for handling these potentially traumatic situations need to be an integral part of a firm's compliance DNA. While specific best practices should be tailored to the specific jurisdiction (or jurisdictions) where the firm operates, the points discussed below offer a useful framework for successfully emerging from the regulatory crosshairs.

Ongoing Practices

The tenor of an examination or investigation will be determined by the groundwork that financial institutions establish with their ongoing compliance and risk management practices.

  • Establish a Compliance Mindset
    Regulatory compliance that operates as a discrete, siloed, and reactionary function presents the ideal environment for fostering a culture that leads to the violation of applicable rules and regulations. Compliance with legal and regulatory obligations needs to be woven into the fabric of all levels of the enterprise, from product and service development, to performance evaluation, to employee training and accountability programs. Firms operating in multiple jurisdictions should ensure that, while compliance programs may need to be tailored to those jurisdictions' specific risks and norms, the organization's core values and ethical conduct standards remain agnostic to location. The importance of compliance needs to be reinforced by the leadership of the firm, its functions, and its lines of business. In addition, executive compensation and performance assessment tools should be structured and aligned to reward compliant behavior.
  • Keep Compliance Resources Aligned With Needs
    Institutions need to ensure that the staff and systems devoted to legal, compliance, audit, risk management, and governance keep pace with the growth and evolution of the business into new products and markets, shifts in risk profiles and appetites, and changing regulatory priorities. Employ appropriate technological innovations and data analysis to both structured and unstructured data sets to identify problems before regulators do.
  • Safeguard Cyber Systems and Assets
    Cybersecurity remains a primary risk for many firms—and thus a priority for regulators. Ensure that the firm's approach to cybersecurity evolves with changing threats and covers not just external intruders but also insiders, who are an often-overlooked source of both accidental damage and malicious incidents. Data privacy policies must keep pace with changing regulations and provide the same level of protection to client information that the firm gives to client assets.
  • Take a Comprehensive View of Risk
    Traditionally, firms have looked at risk from an internal perspective, focusing on factors such as products, people, and infrastructure. In today's business environment, however, risk needs to be viewed comprehensively and holistically. This requires expanding the scope of efforts to identify, mitigate, and disclose risk, and thinking creatively about the places from where risk can emerge. Material contingencies within a transaction need to be scrutinized so that possible risks can be identified and mitigated. Clients, investors, and other third parties need to be subject to due diligence that extends beyond traditional financial measures to encompass their risk mitigation strategies. A reputational or cybersecurity problem affecting a third party can quickly infect your own organization.
  • Assess and Document
    Institutions need to conduct regular assessments of their enterprise-wide risks and controls. Appropriate documentation of findings allows problems to be identified and remediated and evidences a vibrant and effective self-policing function. Make sure that key documents such as certifications and licenses, compliance manuals, codes of ethics, and supervisory procedures are readily available, tailored, accurate, and current.
  • Have a Regulatory Crisis Team and Plan in Place
    Whether crises hit suddenly or emerge slowly, the mechanism for dealing with them quickly and authoritatively must be established in advance. Identify and have on call legal counsel, subject matter experts, and crisis-management and other consultants who can be deployed promptly to minimize damage and find solutions. Establish an escalation framework that can be easily and uniformly applied by managers and employees. Because crises might be triggered by whistleblowers, ensure that a functional whistleblowing mechanism is in place, with appropriate protections for employees who report issues either internally to the company or externally to regulators or law enforcement.

Once the Regulators Surface and Scrutiny Begins

Once regulators begin the formal process of conducting an examination or investigation, response procedures need to be activated quickly. The following discussion identifies key factors that firms need in order to respond effectively under those high-pressure conditions.

  • Involve Outside Counsel and Expert Advisors
    Because regulators and law enforcement are much more coordinated in their actions than previously, treat every interaction with regulators—even a scheduled examination—as non-routine and potentially warranting specialized expertise and guidance. For example, for its fiscal year 2018, the US Securities and Exchange Commission reported that examiners made more than 160 enforcement referrals, resulting in the return of more than $35 million to harmed investors.1 Countless other referrals were undoubtedly made to prosecutors at the federal, state, and local levels.
  • Know the Scope and Staff
    Like a potential business transaction, an examination or investigation calls for thorough due diligence. In an investigation, there is a high likelihood that you will be compelled by subpoena to produce documents. Do not assume, however, that the subpoena is the only document from which you can glean valuable information about the scope and purpose of the investigation. Make sure, for example, that you obtain the formal order of investigation, which may not be volunteered to the party receiving the subpoena. Know which regulatory staff you will be facing and research the public actions in which they have been involved. (Pay particular heed to those who come from specialized units; their technical expertise signals that the matter may be sufficiently complex and warranting extra scrutiny.) In the case of an investigation, find out if there is a parallel investigation being conducted by other law enforcement or regulatory agencies.
  • Engage and Negotiate
    Establishing what information is produced and in what form is an important factor in complying with the regulator's demands. In investigations, negotiate the terms of subpoenas or document requests; even in examinations, do not assume that there is no room for discussion regarding the specific requirements of document production. Engage and discuss with the staff.
  • Be Judicious in Asserting Privilege
    Documents that represent legal advice or attorney work product are generally privileged and protected from production to third parties. But the mere fact that an attorney was involved with the document is not in itself enough to meet that standard. Firms with advisors (either internal or external) who fill both legal and business roles, or who have business advisors with legal backgrounds, need to be careful to assert privilege only where it is warranted. Unsupported claims of privilege are a sure way to alienate the regulators assigned to your case and undermine your credibility—which can carry serious consequences and lengthen the investigation.
  • Carefully Manage Documentation
    When compiling documents for the examination or investigation, be sure to include all forms of communication, including emails and other electronic messages, handwritten notes, and documents stored in offsite locations. Establish controls to prevent documents from being fabricated or backdated, and ensure that documents created specifically to respond to the regulator's requests are labeled as such. Promptly suspend deletion/overwrite schedules so that all communications are retained in original form and metadata is not destroyed or altered. In order to maintain the confidentiality of the produced information, take the appropriate steps in your jurisdiction to reserve the right to object should a third party request the information from the government, and request that the materials be returned at the conclusion of the matter or, at minimum, that sensitive materials be afforded heightened protections.
  • Know When Cooperation Is the Best Course of Action
    The increased use of disgorgement penalties and deferred prosecution agreements has raised the stakes in investigations, making cooperation and self-reporting more attractive alternatives than they once were. When the decision has been made to cooperate, know the guidelines that determine full credit and ensure that they are met: Perform a timely, comprehensive, and independent review; address deficiencies; make full remediation to harmed parties and full disclosure to all relevant regulatory agencies; and demonstrate that self-policing controls and capabilities are in place and have been adequately strengthened where needed.

Even under the best of conditions, regulatory examinations and investigations are trying. From a long-term perspective, however, the scrutiny of a regulatory examination can be beneficial, helping firms address problematic issues before they become full-blown crises. When investigations ensue, having effective and well-thought-out strategies can help minimize the downside exposure and expedite the firm's ability to restore stakeholders' confidence and refocus on its core mission. In either scenario, advance preparation is critical.


12019 Examination Priorities, US Securities and Exchange Commission Office of Compliance Inspections and Examinations, p. 3.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions