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FINRA Examination and Risk Monitoring Programs

As part of our mission to protect investors and safeguard market integrity, FINRA monitors and assesses FINRA-registered firms and their registered representatives through our Examination and Risk Monitoring programs.

How We Do our Work

Our Exam and Risk Monitoring programs are a critical component of FINRA’s regulatory operations and one of the primary means by which we oversee the activities of our member firms. We take a risk-based approach to our oversight, with the goal of detecting, deterring, or addressing activities that may cause investor harm or adversely impact the integrity of our markets.

We classify each member firm by primary business model into one of five Firm Groups: Capital Markets, Carrying and Clearing, Retail, Trading and Execution, and Diversified. From there, we further sort firms into various subgroups. Each of these groups has teams of Exam and Risk Monitoring staff dedicated to it.

This approach enables us to assign staff to examine and monitor firms based on their subject matter expertise and allows the teams to share information and spot trends across Firm Groups, further enabling FINRA to identify and mitigate potential issues more efficiently. By framing our programs in this way, our staff develops deep expertise in the operations and risks affiliated with the business model to which they are assigned.

At the same time, we have processes in place to achieve a consistent approach within the Exam and Risk Monitoring programs when consistency is appropriate and warranted. Additionally, our Quality Assurance team conducts reviews to assess quality and consistency in execution, and to identify opportunities to improve the efficiency and effectiveness of our programs.

Examinations

Depending on the type of firm and our assessment of the risk and impact a firm poses to investors or the markets, we generally examine firms on a one, two or four-year frequency; at a minimum, every firm is examined at least once every four years. These “Firm” exams are the foundation of our oversight program and ensure that we examine firms for compliance with FINRA rules, federal securities laws and regulations, and, when applicable, exchanges’ rules, on a regular basis. The Firm exam teams may include specialist teams—such as anti-money laundering, cybersecurity or fixed income—when warranted, based on the particular risks associated with a firm or its business model.

Beyond scheduled Firm exams, FINRA can initiate what are known as “Cause” exams based on customer complaints, regulatory tips or calls into FINRA’s Securities Helpline for Seniors. These exams focus on specific issues at a firm or with specific registered representatives, with the intent to investigate and resolve concerns or problematic conduct as quickly as possible. This could be through firm-driven changes to their controls, supervisory oversight or compliance program, through the firm’s termination or discipline of the involved employee(s), or through FINRA-imposed sanctions.

If an exam—either Firm or Cause—identifies significant deficiencies, fraud or issues that are clear violations of FINRA or federal securities rules, the matter will be referred promptly to FINRA’s Enforcement Department, other regulators and/or law enforcement agencies. For more on how FINRA’s enforcement process works, visit the Enforcement page.

Risk Monitoring

FINRA’s Risk Monitoring teams learns about and work to understand the unique aspects of each firm they monitor. They apply that knowledge when they help inform exam staff preparing for Firm or cause exams with insights into the firm’s existing operations, as well in their overall monitoring of the firms.

The team engages with member firms on an ongoing basis to understand industry and Firm Group trends, to evaluate the impact to firms from market or financial events, and to monitor the firms for compliance with specific obligations. Risk Monitoring staff also serve as the day-to-day contact for firms for questions or issues.

Each Firm Group is assigned a senior-level Single Point of Accountability (SPOA) who has ultimate responsibility for the risk monitoring activities within that group, for partnering with examination leadership to determine which firms will be examined each year, and for assessing and addressing issues escalated by staff and/or member firms.

Key Resources

  • Report / Study
    This Report on FINRA’s Risk Monitoring and Examination Activities (the Report) is designed to inform member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations. For selected regulatory obligations, the Report: (1) identifies the applicable rule and key related considerations for member firm compliance programs, (2) summarizes noteworthy findings from recent examinations and outlines effective practices that FINRA observed during its oversight, and (3) provides additional resources that may be helpful to member firms.
    February 01, 2021
  • Podcast
    Technology is opening up new possibilities when it comes to solving business challenges. And that's important when it comes to optimizing an organization's most valuable limited resource: its people. On this episode, Member Supervision's new head of Data Analytics and Technology explains how FINRA is augmenting its examination and risk monitoring program.
    September 15, 2020
  • Podcast
    Between the level of interconnectedness on the web and the sheer about of data available, we’re living in an era ripe for the perpetration of financial fraud. That makes it more important than ever for FINRA to have a holistic view of emerging trends and risks—and the ability to coordinate closely with other regulators and law enforcement. FINRA’s new National Cause and Financial Crimes Detection Programs (NCFC) will be the nerve center to do just that.
    May 26, 2020
  • Podcast
    The 1920s was a period of great change and transition and the 2020s are shaping up to be the same—at least for FINRA’s Examination and Risk Monitoring program. On this episode, we kick off the new Roaring 20s with a look at what to expect from the program in the year ahead.
    January 07, 2020
  • Guidance
    In both 2017 and 2018, FINRA issued Reports on Examination Findings in response to firms’ requests that we make publicly available a summary of key findings from FINRA’s examinations of member firms. Firms use this information, as well as effective practices observed by FINRA at certain firms, to anticipate potential areas of concern and improve their procedures and controls. (We subsequently refer to the two prior years’ documents as the “2017 Report” and the “2018 Report.”)
    October 16, 2019
  • Guidance
    FINRA’s examination, surveillance and risk monitoring programs play a central role in supporting FINRA’s mission of investor protection and market integrity.
    December 07, 2018
  • A Few Minutes With FINRA
    Chip Jones, FINRA’s Senior Vice President of Member Relations and Education, talks with Bari Havlik, FINRA’s Executive Vice President of Member Supervision, about the recent decision to consolidate FINRA’s examination and risk monitoring programs. The discussion includes an overview of how FINRA plans to integrate three separate programs into a single, unified program to drive more effective oversight, reduce duplication and create a single point of accountability for the examination of firms. (6 min. 42 sec.)
    October 10, 2018
  • Guidance
    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.
    December 06, 2017