Option C is that the letter was written in bad faith, and the sender intends to "rely on the exact wording rather than the spirit of the law" in order to get me in legal trouble.
That's why the regulator can, must and will exercise judgement. They can't sue you for $bignum after getting your response, they can point the regulator towards you and claim that they've been abused, but if they are the abuser, then that's not going to fly.
Being the target of a government investigation is in and of itself an expensive process. You have to spend a bunch of time preparing your side of the story in exacting detail. You probably need to put a freeze on any changes which might make the regulator think you're trying to cover up previous misconduct.
And of course, if people find out out you're under investigation, a lot of people are going to just assume you did something wrong. You won't be able to fix that no matter what the regulators conclude.
