Ahhhhhhhhh. Labor Day. School’s back in session. The smell of autumn in the air. And…the regulators stepping up the pace of branch assessments. Are you ready?
The Financial Industry Regulatory Authority (FINRA), the U.S. Securities and Exchange Commission (SEC), and the rest of the financial services industry’s regulatory alphabet are back in session and they are coming to see you. It’s only a matter of time. Are you ready?
BOAs as a regulator income stream
Who knew Branch Office Assessments (BOAs) were such a moneymaker? Suprise! They are!
When FINRA released its 2015 Year in Review, the Authority reported that regulatory fees accounted for 45 percent of its revenues. Those scary fines and dispute revenues a mere 9 percent and 4 percent respectively.
Among the best FINRA-income-generating funnels are Branch Office Assessments, trade activity fees, gross income and personnel assessments. These revenues are used to fund FINRA’s regulatory activities, including examinations and surveillance (BOAs); financial monitoring; and FINRA’s policymaking, rulemaking, and enforcement activities.
You know FINRA is coming and the SEC is watching
Yep. FINRA is coming. Rule 3110 requires it. So whether you are a one-branch shop or a multinational. you know that FINRA regulators will inspect every one of your supervisory jurisdictions or branches at least once a year. Your non-branch locations can expect a visit from the regulators at least ever three years.
Bad actors beware!
When your number comes up, will you be FINRA/SEC-ready? North Woodward Financial Corp. of Birmingham, MI wasn’t. Both FINRA and the SEC found the broker-dealer and its principal owner, president, and financial/operations principal Douglas Troszak guilty of noncompliance and expelled him.
According to findings of just the SEC, the firm failed to prepare and maintain a current general ledger and trial balance. Moreover, FINRA reported that the firm refused to cooperate fully with its investigation into Troszak’s borrowing of funds from his and North Woodward’s customers. FINRA’s National Adjudicatory Council (NAC) barred Troszak and expelled North Woodward from the financial services industry for the egregious flouting of FINRA rules, the violation of FINRA Rules 8210 and 2010, and for failing to provide the requested information.
The case stems from FINRA’s concern that Troszak was taking advantage of his broker-dealer customers by persuading them to loan him money to address his financial difficulties (redeeming his foreclosed condo) rather than recommending investments that would further their financial goals. He convinced 10 North Woodward customers to loan $200,000 to a company he controlled and issued promissory notes to them. FINRA’s examiners were alarmed by Troszak’s self-interested dealings with his firm’s customers and launched an investigation.
Personal, confidential, and irrelevant?
FINRA asked for information related to the specifics of these transactions, including documentation showing whether the customers were being repaid timely with interest. Troszak and North Woodward declined, saying the information was “personal and confidential” and “irrelevant” to FINRA’s investigation. And now we all know how that ended…
So, deliver the goods or…
…Risk negative publicity or worse!
There’s no question you have to give the regulators what they want when they want it. Are you? How are you managing the flood of data required to be compliance, the regulatory compliance, branch audits, written supervisory procedures, monitoring of outside business activities, marketing, political contributions and so on? The list of Chief Compliance Officer (CCO)responsibilities is endless — and even the smallest error or omission – intentional or unintended can add up to big money and painful consequences.
To paraphrase the motto of Smokey Bear, ” Only YOU can prevent regulatory actions!” Be prepared. Get the weight of management behind you and demand the tools to make compliance happen.
Let’s talk (212- 233-1155).