November 30, 2011
Washington, DC, November 30, 2011 — The Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE) and the Financial Industry Regulatory Authority (FINRA) today issued a Risk Alert and a Regulatory Notice on broker-dealer branch inspections, and offered suggestions to help securities industry firms better perform this key supervisory function.
"A robust process for self-inspection of branch offices is a critical element of a firm's compliance and supervision process, and a vital part of a comprehensive risk management program," said Carlo di Florio, Director of OCIE. "This Risk Alert highlights practices that are characteristic of effective branch office supervisory systems, and describes major deficiencies that SEC and FINRA examiners have found in the branch inspection process."
"An effective risk based branch office inspection program is an important component of a broker-dealer's supervisory system and, when constructed and implemented reasonably, it can better protect investors and the firm's own interests," said Stephen Luparello, Vice Chairman of FINRA. "FINRA encourages broker-dealers to review this guidance and consider enhancements to their own branch office inspection programs."
Along with specific requirements outlined in the report, effective practices observed by examiners include:
This is the second in a continuing series of Risk Alerts that the SEC's national examination staff expects to issue. These documents are intended to alert senior management, risk management, and compliance managers in the securities industry to significant risks identified by the SEC's national examination staff, so that industry members can more effectively address those risks.
The following SEC staff contributed substantially to preparing this Risk Alert: Julius Leiman-Carbia, Daniel Gregus, Rich Hannibal, George Kramer, Barbara Lorenzen and Karol Pollock.
The following FINRA staff also contributed substantially to preparing this Risk Alert: Michael Rufino, Paul Fagone, Donald Litteau and George Walz.
For more information contact:
Carlo di Florio
Director, Office of Compliance Inspections and Examinations
Associate Director, Office of Compliance Inspections and Examinations
Senior Counsel to the Director, Office of Compliance Inspections and Examinations