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FINRA Examination Reform

 
Tuesday, December 31 2019

In case you missed it, earlier this month FINRA announced a consolidation of examination responsibilities previously divided among three different programs responsible for business conduct, financial, and trading compliance. With more than 3,600 firms and 630,000 individual brokers to examine, the programs will now be under “a single framework designed to better direct and align examination resources to the risk profile and complexity of member firms.”

Under the new program, firms are grouped under one of the five main business models:

  • Retail
  • Capital Markets
  • Carrying & Clearing
  • Trading & Execution
  • Diversified

Each main group is additionally broken down into subgroups, allowing FINRA a more precise categorization of firms with like business models. Firms will also be assigned a single point of contact for accountability.

Drawbacks

As a non-governmental agency that relies on support from member registrations, it’s understandable that FINRA may want to improve the examination experience for members. As it also examines for compliance with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board, there’s also benefit to streamlining processes. However, a potential pain point in the unified program is the single point of contact. If FINRA has not set up a means of communication between examiners or a centralized database to maintain a detailed knowledgebase, during attrition of new examiners there may be issues ensuring a new examiner is able to pick up quickly where the departing examiner left off.  

Keep Calm and Compliance On

We all recognize regulation is not an exact science. Whether the regulator is a self-regulatory agency or a government regulatory body, they’re all plagued by similar constraints whether it’s budgets or manpower.  While the new program will be a change for thousands of firms and brokers, what remains the same is to continue to keep up with the rules and keep your compliance program in good working order. 

As always, please feel free to reach out to the Red Oak Team to learn our compliance software will help your firm stay ahead of the ever-evolving world of regulatory requirements. regulatory requirements.