Yesterday, FINRA released its annual Examination Priorities Letter in which it set forth the top issues that would guide its examinations in the coming year. Running 13 pages in length (while complaining about having to be so “brief”), FINRA set forth some of the “many areas of potential concern” it expects to encounter this year.
None of the items is particularly shocking if you regularly follow FINRA chatter. They are, for the most part, well known FINRA favorites: conflicts of interest, cybersecurity, AML, senior investors, and supervision.
The most notable change over last year’s priority list (aside from shaving off a few pages) is the prevalent focus on “firm culture.” While the term appeared on prior lists, it is now front and center, making clear that the regulator will be looking not just at the firm’s written policies and records, but how genuinely the firm implements them. To guide firms which are unsure how to demonstrate how highly they value compliance, FINRA has said it intends to look for the following five factors:
- Are control functions valued?
- Are policy breaches tolerated?
- Is the organization proactive in identifying risk?
- Are supervisors good role models?
- Are non-conformist subcultures within the firm identified and “addressed”?
The idea behind the initiative is not terribly revolutionary – FINRA has never looked favorably on firms that merely go through the motions and fail to meaningfully implement their policies. Still, it will be interesting to see how FINRA analyzes these behavioral elements. For example, how will firms deal with policy violations? Does a violation that previously warranted a reprimand now require something more severe? Heightened supervision, suspension, or termination? And how do you measure how highly your control functions are “valued”? (Or, more specifically, how will FINRA measure it?)
FINRA certainly has provided a lot to look forward to in 2016. If you’d like to review each of the items on its “brief” 13-page list, you can find it HERE.