FINRA Announces Plan to Scrutinize Brokerage Firm Compliance Culture

Representing Investors Nationwide

The Financial Industry Regulatory Authority (FINRA), yesterday, announced plans to assess whether adhering to securities regulations is part of a firm's culture when conduction firm compliance and risk management examinations this year. Other areas for increased FINRA scrutiny include conflicts of interest in the sale of proprietary products and products the firm is paid to sell, technology, anti-money laundering and firm liquidity.

While not trying to impose a specific culture, when making the announcement, FINRA stated the primary goal of any firm should be to elevate the needs of its clients above its own. The regulator is trying to determine if everything the firm does is in the customer's best interests. Acting in the best interests of the client is actually the fiduciary standard that applies to investment advisers, who are overseen by the Securities and Exchange Commission. FINRA, the industry-funded broker-dealer regulator, enforces the less stringent suitability standard.

FINRA  believes broker dealers should not wait for the Securities and Exchange Commission (SEC) to promulgate a fiduciary duty rule for brokers (like the one for investment advisors) before applying that standard now. As an aside, the Department of Labor has proposed just such a rule and it has survived the most recent legislative session.

A firm's attitude toward compliance is the first thing that signals to the regulator whether it should look for other problems. FINRA believes culture says a lot about risk assessment and compliance. “Culture speaks volumes when we do risk assessments,” Susan Axelrod, FINRA executive vice president for regulatory operations, said in an interview. She added that brokers should be “proactive rather than reactive” when it comes to compliance.

The experienced securities litigation attorneys at Colling Gilbert Wright & Carter have litigated and resolved hundreds of FINRA arbitration claims, many involving compliance and suitability failures. If you believe you lost money due to negligence or fraud on the part of your FINRA registered broker dealer, please contact us for a free case evaluation.

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