Tips on How to Stay Compliant and Survive a FINRA Audit

The Financial Industry Regulatory Authority (FINRA) is an agency that delivers auditing and regulation enforcing services to the financial industry. Though they are not a government entity, they do work closely with SEC (US Securities and Exchange Commission) and enforce those regulations as well as their own.

Who will come under FINRA Scrutiny?

FINRA strives to provide for a safe and stable market so people can feel confident in their investments, and they also regulate over 4,200 brokerage firms nationwide.

Any financial, securities, investment, or brokerage firm will be subject to a FINRA annual audit, as outlined in the Securities and Exchange Act Rule 17a-5. Additional annual reporting is also required by any SIPC members.

What can they expect of a FINRA Audit?

A FINRA annual audit will include a fair examination of the following aspects to ensure compliance and security in the financial industry:

Licensing
FINRA requires and enforces up-to-date licensing for all firms and brokers. They also ensure that brokers are keeping up-to-date with their industry education and registrations.

Day-to-Day Brokerage Activities
Field agents of FINRA visit brokerages on a consistent and ongoing basis to monitor and observe the day-to-day activities and minimize potential for risk.

Advertisements
FINRA also keeps close tabs on any advertisements that brokers are placing or any claims they’re making in their marketing materials. They do so to make sure that their claims and information are accurately captured and represented.

Fair Trading Practices
FINRA investigates any complaints or odd activity, and they also leverage up-to-date technology to constantly look for any evidence of unfair practices or inside trading. This organization also looks out for unsavory money laundering activities through FINRA AML audits.

Additionally, FINRA audits will include investigation into brokerage branches to ascertain that business practices are upstanding, and that they have a long-term plan and goal in their vision. Recently, electronic information and social media content have also become “hot buttons” of attention for FINRA as well.

What would happen if a FINRA audit didn’t go so well?

If non-compliance is uncovered in the course of an audit, then FINRA will take “aggressive vigilance,” which includes financial and disciplinary actions on brokers through fines and suspensions. If the issue is serious enough, brokers may even be barred.

When FINRA discovers a breach in compliance, they outline the rules that have been broken, and that information is funneled through the Market Regulation to the OHO (Office of Hearing Officers) to be further examined and investigated for resolution.

FINRA Audit Checklist

The FINRA Audit Checklist below can help you understand the best ways to stay complaint and vigilant so you’re prepared for regulatory audits from FINRA:

Uphold Transparent and Effective Supervisory Control
All firms should have clear, firm, and transparent supervisory controls in place to make sure there is a balance of power, no funds are inappropriately diverted, and no numbers are falsely represented. This is a system that should be tested frequently. The details of when the test is taking place and who will be performing it must be reported to FINRA in advance so they are aware of what is taking place.

Prepare for the Annual Reporting with Diligence
Every year, FINRA requires reporting that clearly outlines the supervisory controls in place and a recap of any tests to that system, with outcomes and resulting changes to the system. There should be a sole person on the team responsible for this reporting, and it should be completed yearly with attention and diligence to help FINRA identify any issues or inconsistencies.

Name and List Managers and High-Stake Brokers
FINRA requires that only qualified people handle securities within a firm, and they must be listed. Additionally, any managers with the ability to trade up to 20% of a stock must be authorized by FINRA and are subject to heightened supervision.

State Supervision Procedures and Review Processes
Firms looking to achieve compliance with FINRA must be able to provide an explanation of how and when the following 3 things will be monitored:

  • Customer funds being transferred to third party or otherwise outside accounts
  • Changes to customer addresses
  • Changes in investing objectives made by the customer

eFileCabinet Can Help

Being organized and prepared is vital to a successful FINRA or FINRA AML audit. It’s a good idea to always stay compliant and keep detailed records that are organized for easy access. They also need to be safely secured and protected from tampering and loss.

eFileCabinet products can help firms achieve compliance with FINRA guidelines and rules, with industry-leading document storage and management systems. Using this system, firms can easily produce audit trails and be confident knowing that their information is kept secure through encryption, role-based securities, and backups. This makes data and document retrieval during an audit or annual report seamless and simple, and it eliminates lost or damaged files.

Additionally, eFileCabinet can help save time, space, and money, while helping increase profits. Having all the documentation needed for an audit organized, accessible, and secured through eFileCabinet will also help financial firms stay compliant with much more ease.

By | 2016-12-15T11:59:34+00:00 October 27th, 2015|
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