Reg SCI Compliance: How to Prepare for Your Annual Audit

What is Regulation SCI?

In late 2014 the Securities and Exchange Commission (SEC) voted to adopt rules designed to strengthen the technology infrastructure of the US securities markets, requiring entities to have comprehensive policies and procedures in place for market impacting technologies. Regulation Systems Compliance and Integrity, dubbed “Reg SCI” in the financial community, these rules also offer guidance to take corrective actions when system issues or planned changes occur, provide notifications and status reports to the SEC, inform members and participants about system issues and changes, conduct business continuity testing and conduct annual reviews of their systems.

For SCI entities, those registered with the SEC as Self-Reporting Organizations (SROs), Alternative Trading Systems (ATSs), plan processors, or clearing agencies, Reg SCI is a cornerstone of regulatory oversight. The required annual Reg SCI audit under Rule 1003(b) can be a strategic opportunity to evaluate, strengthen, and future-proof your technology environment. Treating the audit as a proactive control check (not just a checked compliance box) can significantly enhance your regulatory readiness and operational resilience.

Why Your Reg SCI Audit Matters

Reg SCI is designed to ensure that entities maintaining the infrastructure of U.S. securities markets are operating systems that are secure, stable, and resilient. The rule requires affected entities to establish and enforce written policies and procedures that ensure their SCI systems (and indirect SCI systems) maintain capacity, integrity, availability, and security.

The annual audit requirement mandates that each entity engage independent reviewers to assess the effectiveness of these policies and procedures. It’s not just about meeting the letter of the law; the SEC expects you to demonstrate meaningful oversight and evolution of your controls year over year.

The Audit Isn’t Just About Checking a Box

Firms sometimes approach the annual SCI audit as a compliance hurdle to clear and forget. That approach can be risky. Regulators are increasingly interested in how firms respond to audit findings, not just how quickly they complete the audit.

The better approach is to treat the audit as a health check across your operational, cybersecurity, and governance functions. Done right, it can help your firm:

• Identify previously unrecognized system dependencies or risks
• Prioritize resource allocation for system upgrades
• Enhance coordination between compliance, IT, cybersecurity, and business units
• Build documentation that supports a strong defense during exams or incident reviews

The audit can also provide critical independent validation. A third party’s perspective brings insights into where your practices may be misaligned with industry norms or evolving expectations—even in areas not explicitly called out by the rule.

Key Considerations: Preparing for Your Annual Reg SCI Audit

Scope: Are You Looking at the Right Systems?

Before the audit begins, you need to confirm what systems are considered “SCI systems” and “indirect SCI systems.” As your business evolves, this list may change. New trading platforms, surveillance tools, or even internal databases may fall within scope depending on how they support critical SCI functions.

Many firms overlook this and end up with an incomplete assessment, or worse, fail to account for newly integrated technologies that impact core operations. Make sure your systems inventory is current and reviewed with input from IT, compliance, and business stakeholders.

Documentation: Will It Stand Up to Scrutiny?

One of the biggest challenges firms face during the Reg SCI audit is demonstrating that written policies and procedures are not only in place, but that they are followed. Your firm’s documentation should show:

• Clear designation of system ownership and responsibilities
• Defined escalation paths and incident management procedures
• Detailed change management records
• Ongoing testing, monitoring, and validation protocols

If you’re relying on legacy policies or ad hoc practices, it’s time to update. A clean, consistent documentation framework will streamline the audit and reduce follow-up burdens.

Cybersecurity Integration

Reg SCI and cybersecurity are tightly connected. Your annual audit should address how your firm prevents, detects, and responds to cyber threats, especially for SCI systems. The assessment should align with frameworks like NIST or ISO where appropriate, and demonstrate how cyber risk is integrated into your broader risk management program.

Make sure your cybersecurity team is actively involved in audit preparation, and that they can translate technical controls into compliance language that the audit team (and regulators) can clearly understand.

Incident Response Readiness

In the event of a system issue or incident, regulators will want to see how you responded. Even if you haven’t had a material SCI event, your audit should evaluate your incident response testing and preparedness. Were simulations conducted? Were findings tracked and addressed? Do you have a communication protocol that aligns with your notification obligations under Reg SCI?

Firms that wait for an incident to build their playbook are already behind. Use the audit as a moment to stress-test your readiness.

Cross-Functional Collaboration: Who Owns the Outcome?

A successful Reg SCI audit is never just a compliance team effort. IT, Cybersecurity, Operations, Legal, and senior leadership all have a role to play. Early coordination avoids gaps in communication, missed deadlines, or inconsistent narratives. Establish clear project ownership, build timelines with buffer room, and assign responsibility for addressing findings as they arise.

Don’t Make This Common Mistake

The most common mistake Oyster Consulting sees? Letting audit findings sit untouched. Regulators expect firms to track, remediate, and document resolution of any deficiencies or improvement areas identified in the audit. Even where an issue is “low risk,” a thoughtful response plan shows a culture of compliance.

Establish a centralized log of all findings, assign action owners, and update your governance committees or leadership regularly. Your future audits—and your regulators—will thank you.

Additional Resources

• Beyond Business Continuity: Operational Resiliency as a Competitive Advantage
• 5 Key Cybersecurity Measures to Protect Your Firm
• Cyber Risk Management: Insights for CCO

Reg SCI Compliance, Built for Efficiency and Impact

Whether you need help determining your SCI system scope, conducting your audit, or remediating findings, Oyster Consulting has deep experience guiding firms through Reg SCI compliance. Our team includes former regulators, industry IT experts, and compliance professionals who understand what regulators require, what a robust Reg SCI program looks like, and how to build one efficiently.
Contact us today to discuss how we can support your annual Reg SCI audit and help you turn a compliance obligation into a meaningful advantage for your business.