In today’s regulatory environment, firms must prioritise compliance to avoid the pitfalls of regulatory scrutiny and enforcement actions. A proactive approach not only mitigates regulatory risk, but also supports investor confidence - particularly as investor due diligence processes increasingly scrutinise the strength and responsiveness of compliance programmes. By conducting regular thematic reviews, firms can identify areas for improvement and ensure they are well-prepared for any regulatory inquiries and investor assessments. 

A critical tool for readiness

Health checks and mock exams have moved far beyond simple policy and procedure reviews. Today, they should be a key component of a firm’s compliance programme - helping to uncover risks before they become serious regulatory issues. This is true for all regulated firms, regardless of jurisdiction, as regulators around the world continue to raise expectations and intensify scrutiny.

Examiners increasingly rely on trade data to identify trends, inconsistencies, and high-risk activity. Firms conducting compliance assessments with similar analytics can anticipate how their records, disclosures, and internal controls might be interpreted under review. This approach strengthens compliance and offers a clearer view of potential vulnerabilities.

How health checks and mock exams strengthen compliance

A well-designed health check or mock exam is one of the most effective ways to prepare for an actual regulatory review. By simulating regulatory scrutiny, firms can assess the strength of their compliance programs and proactively address potential issues before they escalate.

Key benefits include:

• Uncovering compliance gaps: These assessments reveal weaknesses in policies, procedures, and documentation, giving firms the opportunity to correct issues before they become regulatory findings.
• Improving response readiness: Understanding what to expect from the regulator helps compliance teams respond more efficiently to inquiries when a regulator announces an examination.
• Demonstrating a commitment to compliance: Proactively conducting assessments signals to regulators – and investors – that the firm prioritises compliance and maintains strong oversight.
• Enhancing internal oversight: Routine testing of compliance processes strengthens internal controls and reduces the risk of enforcement action.

Preparing for a compliance assessment

To stay ahead of regulatory scrutiny, firms should structure their health check or mock exam around key risk areas, including:

• Cybersecurity protocols: Test adherence to updated data protection rules and breach notification requirements.
• Anti-money laundering (AML) controls: Ensure AML policies and procedures meet regulatory requirements and test to confirm their effectiveness in identifying suspicious activity.
• Use of technology and AI: Review automated decision-making processes for compliance risks and potential conflicts of interest.
• Regulatory documentation and reporting: Verify the accuracy and completeness of Form ADV disclosures, financial statements, and client communication policies.

Find confidence amid uncertainty

With growing market uncertainty, investment firms must take a proactive approach to compliance. Health checks and mock exams are becoming more data-driven and detailed, and firms that conduct reviews are better positioned to adapt to shifts in regulatory scrutiny.

By identifying risks early, strengthening internal controls, and aligning policies with both current guidance and potential shifts, firms can reduce regulatory exposure and reinforce investor trust. Partnering with an experienced third party can add further value - bringing benchmarking insights, regulatory exam expertise, and independent challenge - all of which help firms to raise the bar on preparedness.