Have you or any associated professional ever been audited by the SEC, FINRA, any state securities department, or other licensing or regulatory agency?

This question helps the insurance carrier evaluate your firm's risk profile by understanding your history of regulatory scrutiny. Being audited by an agency like the SEC or FINRA is a significant event. While often routine, it can also uncover compliance issues or misconduct. A history of audits, especially those resulting in findings, can indicate a higher risk of future Errors and Omissions (E&O) claims.

• What is a "Regulatory Audit"? In this context, an audit is a formal examination or review of your professional activities, records, and compliance programs by a regulatory or licensing agency. It is designed to ensure you are following all applicable laws, rules, and ethical standards.
• Who are the "Regulatory Agencies"?
  • SEC (Securities and Exchange Commission): The primary federal regulator for the securities industry.
  • FINRA (Financial Industry Regulatory Authority): A self-regulatory organization that oversees broker-dealers and their associated persons.
  • State Securities Department: State-level agencies that regulate investment advisors and securities activities within their borders.

To answer this question, you must disclose if you or anyone at your firm has ever been the subject of an audit by a financial regulator.

• Review History: This applies to the entire professional history of each person at your firm, including their time at previous employers.
• Broad Scope: The question covers you and all associated professionals (partners, officers, employees).
• All Audits: You must report any audit, regardless of the outcome. This includes routine exams and audits that resulted in no findings.

If any such event has occurred for anyone at your firm, you must answer "yes." If not, you can answer "no."

• Mistake: Believing that an audit with "no findings" doesn't need to be disclosed.
  • You must disclose all audits, regardless of the outcome. The fact that you were selected for an audit is, in itself, information the underwriter needs to assess risk.
• Pitfall: Confusing an internal audit with a regulatory audit.
  • This question is only about audits conducted by external government or quasi-governmental agencies like the SEC, FINRA, or state regulators, not internal compliance reviews conducted by your own firm or a consultant.
• Mistake: Forgetting to ask employees about audits that occurred at their prior firms.
  • The question asks if any associated professional has ever been audited. This includes their entire professional career. Your firm's compliance process should include asking new hires about their regulatory history.