How our fintech startup became SEC compliant

How our fintech startup became SEC compliant

After the last one failures of financial institutions such as FTX and Silicon Valley Bank, regulators have been blamed for poor investigation processes and enforcement of the regulations that financial organizations in the United States must follow. However, our experience with licensing and investigation by the Security and Exchange Commission seemed legitimate. From our perspective, they help protect clients.

For starters, achieving Registered Investment Adviser (RIA) status in the US will enable companies to provide personalized investment advice and comply with relevant laws. As a fintech startup operating in the investment advisory domain, 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 the preparation of several documents and incurred expenses of approximately $50,000 for legal services and filing fees, which took about three months to complete.

This was our experience:

  • We got a call out of nowhere.
  • Next step: a two-hour introductory meeting.
  • The list of documents they requested.
  • Adjustments during the review and outro call.

At some point after achieving 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 advice are complying with securities laws and regulations. Although there are no claims against your company, these investigations may occur at any time to review your policies, services and records.

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As part of the process, the SEC may conduct interviews, review existing policies and marketing materials, and request a detailed description of the financial services offered to clients. The duration of the investigation process may vary depending on factors such as the size and complexity of the company being investigated. A complex investigation can take up to six months or more.

We have incurred expenses of approximately $50,000 for legal services and filing fees; the survey process took around 3 months to complete.

After conducting its investigation, the SEC will issue a letter outlining its findings. If no major issues are discovered, your firm will have two months to address any concerns raised by the SEC. It is important to take these findings seriously and address any issues immediately to ensure compliance with applicable securities laws and regulations.

We got a call out of nowhere

It was just a normal business day when a call came in to the company’s phone number and the speaker identified himself as part of the SEC office in San Francisco, double-checked the email information of company executives and announced that we were under investigation as part of standard practice with SEC. I was also told that we would soon have to arrange an introductory meeting with their team.

I didn’t even know the SEC had an office in San Francisco.

Next step: A two-hour introductory meeting

When we arrived, there were three people representing the SEC end and two representatives from our company: me and Chief Investment Officer Mike Stukalo. As I recall, our discussion was not recorded, which felt like a nice touch. I was impressed by 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 registered investment adviser company. They had a fairly decent understanding of our product before the call.

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After an introduction and basic questions, they asked very specific questions about how exactly our product worked to understand every last detail. Most of those two hours of conversation were related to a product and what it does. Everyone was very polite and pleasant: it felt more like a demo call to a potential customer.

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