What FINRA regulators have seen this year

For the edification of the financial community, the Financial Industry Regulatory Authority (FINRA) has published a summary of key findings drawn from its 2018 broker-dealer examination, surveillance and risk monitoring programs. Historically, a broker-dealer’s FINRA examination report addressing issues identified are provided only to the relevant firm. However, the Authority hopes that in issuing this report it may serve as another resource for firms to strengthen their compliance programs and supervisory controls and possibly preempt regulatory exposure.

While many of the issues highlighted impact investor suitability checks, worth noting is a marketing-related issue – DBAs and client communications.

DBAs and outside business activities

There are no FINRA rules regarding registered reps using a “doing business as” or DBA name. However, FINRA does have an issue when some use their DBAs to conceal outside business activities that were not disclosed as required by FINRA Rule 3270 – Outside Business Activities of Registered Persons. FINRA has also notes that some firms have additional deficiencies relating to FINRA Rule 2210 – Communications with the Public – in their oversight of members’ doing business with a DBA. FINRA reports that those firms using an independent contractor business model faced additional challenges because their reps and branches are relatively autonomous. In particular, FINRA saw firm failing to maintain adequate written supervisory procedures (WSPs)and controls, or disclosures regarding DBA name use

Among the issues FINRA identified were:

• Failure to properly disclose the firm name – The reps used their DBA in their communications but failed to disclose the firm’s name or the fact that the securities were being offered through the unnamed firm.
• No Hyperlink to FINRA’s BrokerCheck® – Some reps’ websites did not include an appropriate reference or hyperlink to FINRA’s BrokerCheck on web pages that include the rep’s professional profiles.
• Inadequate WSPs or Controls – FINRA noted that some firms failed to maintain or implement WSPs, establish adequate controls over registered representatives’ use of DBA names, or monitor retail communications, websites, social media accounts, seminars or external email accounts through which representatives communicated on the firm’s behalf.

More FINRA updates to come

FINRA expects further summaries of exam observations will be forthcoming, as the regulatory and compliance climate evolves. And it expects that these reports also will help the financial services community improve and preemptively strengthen internal oversight and compliance even before the regulators come knocking.

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