FINRA’s examination program plays a central role in supporting FINRA’s mission of investor protection and market integrity. A main component of this program is FINRA’s examinations of broker-dealers (“firms” or “members”) that are conducted on a regular cycle basis: each firm is examined at least once every four years, and many are examined even more frequently. In connection with each of these examinations, FINRA prepares a report—which is available only to the relevant firm—addressing certain aspects of the firm’s compliance with securities rules and regulations. Firms are required to address issues identified by FINRA, and many do so by proactively taking corrective action before FINRA concludes its exam. Through this sort of rapid remediation, firms strengthen their compliance and supervisory programs, which ultimately helps better protect investors and the integrity of the markets.
FINRA is issuing this report as another resource that firms can use to strengthen their compliance with securities rules and regulations. Some firms have requested that FINRA make generally available a summary of observations from the cycle examination program, so that they can further improve their compliance functions based on the experiences of other firms, and better anticipate and address potential areas of concern well before their own cycle examinations.
This report focuses on selected observations from recent examinations that FINRA considers worth highlighting due to their potential impact on investors and markets or the frequency with which they occur. This report does not represent a complete inventory of observations about the industry as a whole, does not imply that any issues discussed exist at any particular firms, and should not be read as creating new legal or regulatory requirements or new interpretations of existing requirements. An individual firm may not have any deficiencies in the risk areas identified in the report.
This report also describes certain practices that FINRA has observed to be effective in appropriate circumstances, which other firms may be able to use as a resource in tailoring their compliance and supervisory programs to their business. There should be no inference, however, that FINRA requires firms to implement any specific practices described in this report that extend beyond the requirements of existing securities rules and regulations.
FINRA expects that this report will evolve over time as we work to ensure that it is helpful in supporting firms’ compliance and supervisory efforts. FINRA welcomes feedback on how we could make future reports on examination findings more useful. If you have suggestions, please contact Daniel M. Sibears, Executive Vice President, Regulatory Operations/Shared Services, at (202) 728-6911; or Steven Polansky, Senior Director, Regulatory Operations/Shared Services, at (202) 728-8331.
TABLE OF CONTENTS
- Summary of Additional Observations