As we previously blogged about (here and here), FINRA is focusing on your firm’s culture as its top priority this year. FINRA is planning to meet with your executive, compliance, legal, and risk management teams to discuss “how your firm communicates and reinforces those values directly, implicitly and through its reward system”, and in particular, “how your firm measures compliance with its cultural values, what metrics, if any, are used and how you monitor for implementation and consistent application of those values throughout your organization.” FINRA has announced that, in order to facilitate such a meeting, it will be asking for the following information in advance:
- A summary of the key policies and processes by which the firm establishes cultural values.
- A description of the processes employed by executive management, business unit leaders and control functions in establishing, communicating and implementing your firm’s cultural values.
- A description of how your firm assesses and measures the impact of cultural values (to the extent assessments and measures exist) and whether they have made a difference at your firm in achieving desired behaviors.
- A summary of the processes your firm uses to identify policy breaches, including the types of reports or other documents your firm relies on, in determining whether a breach of its cultural values has occurred.
- A description of how your firm addresses cultural value policy or process breaches once discovered.
- A description of your firm’s policies and processes, if any, to identify and address subcultures within the firm that may depart from or undermine the cultural values articulated by your board and senior management.
- A description of your firm’s compensation practices and how they reinforce your firm’s cultural values.
- A description of the cultural value criteria used to determine promotions, compensation or other rewards.
If your firm has already received such a targeted exam letter from FINRA requesting this information, then you know that you only have about a one month turn-around. You should immediately begin to prepare a thorough response, especially considering this is a new area of focus for FINRA, and thus we have not yet seen practically how FINRA will perform and react to an assessment of firm culture. If you have not yet received such a request from FINRA, you should at least begin to start considering how your firm will respond to such a request. Identify any key areas in which you may be deficient and focus on improving them now, so that if you eventually do receive a targeted exam letter such as this, you will be in a much better position to respond.