This year, the Financial Industry Regulatory Authority (FINRA) will focus on three broad areas of concern
1. Culture, conflicts of interest and ethics;
2. Supervision, risk management and controls; and
Big issues all of them. Culture is a holdover focus from 2015, and if you aren’t doing it already, FINRA wants you to stop dilly-dallying and flesh out your “culture of compliance.” In its 2016 Regulatory and Examination Priorities Letter, the Authority acknowledges that “while firms may have their own definitions of ‘firm culture,'” FINRA intends to “formalize our assessment of firm culture while continuing our focus on conflicts of interest and ethics.”
What does that mean for your firm and its culture?
According to FINRA, your firm’s culture profoundly influences how it conducts its business and manages its conflicts of interest. While the Authority does not intend to dictate appropriate firm cultures, it will be looking at how your culture affects your compliance and your risk management practices. When FINRA reviews your firm, it says it will focus on how you develop, communicate, and evaluate compliance conformance; and it will assess you based on the following five indicators:
Show you are culturally compliant
FINRA will be looking at your approach to identifying and managing conflicts of interest. Make sure those actions are visible and verifiable, because FINRA wants to see what you are doing. For example, demonstrate that material breaches of firm policies and procedures are not tolerated, and that your compliance functions are equipped with necessary resources to ensure you can smoothly navigate what the regulators call “a complex and changing regulatory and market environment.”
Supervision, Risk Management and Controls
Of course, a culture of compliance is just one issue. Establishing and maintaining a system of supervision, oversight, and controls that ensures compliance is another. FINRA wants you to have those systems, processes, and procedures in place too.
Data Quality and Governance
Now more than ever, make sure your data governance, quality controls, and reporting practices are up to snuff because FINRA expects you to ensure that the firm’s data management, surveillance, and supervisory procedures are accurate, complete, consistent, and timely. It is FINRA’s observation that the flashpoint for a firm’s operational problems is sparked by data quality and integrity issues, which, in turn, can undermine your ability to monitor or report key information to effectively manage your risk and business activities.
FINRA knows you are looking to reduce costs by outsourcing key operational functions. So be smart about it. Choose your vendors wisely, because at the end of the day, you are still responsible. So make sure you outsource to qualified and registered third parties (like Patrina!).
FINRA will be even more active in 2016
You know it’s only a matter of time before the regulators show up at your door, so be prepared. Get your compliance processes and procedures, and your documentation in order. Regulatory oversight is not going to go away.
While you already may feel compliance is job with no end, there’s no question that going forward you will be doing more of it. Want more time to do your real work? We can help. Ask about Patrina’s comprehensive compliance solutions specifically designed for Broker/Dealers, RIAs, and FCMs.
Let’s talk (212- 233-1155).