FINRA Outlines Common Exam Deficiencies and Offers New Compliance Tools for Members

Published On September 27, 2019

27 September 2019: The US Financial Industry Regulatory Authority was in collaborative form as it hosted its FINRA Institutional Conference in New York on September 11th this year. The conference brought together industry experts, executives and policymakers to share their specialized knowledge and experiences on topics affecting institutional firms across the country. It aimed to facilitate meaningful dialogue on a range of topics in an educational format that encourages the exchange of ideas and opinions. The conference offered participants opportunities to interact, share effective practices and learn from representatives from institutional firms, regulators and exhibitors.

During a session on common examination findings, FINRA staff outlined the most common deficiencies seen during their recent examinations. Correct registration with the regulator and the exchanges with which they do business; while FINRA finds most are properly qualified, the brokers are often not registered with the exchanges. Since October 2018, FINRA offers functionality to automate this registration with exchanges. 

Clock and timestamp synchronization was raised too. There is a new standard prescribed by the SEC requiring 50 millisecond accuracy to the National Institute of Standards and Technology standard, in this case applicable to records around securities and OTC securities transactions. The staff commented that firms do not have procedures or records related to situations where synchronization does not happen. In many cases this is because of vendor outsourcing and firms need to be requesting these logs and checking their vendors are synchronizing accurately.  

Order Audit Trail System (OATS) violations are still generically common in this area, where times, certain events, or special handling instructions for customers are not being reported correctly.

In vendor management generally, the FINRA team recommended more due diligence before vendor selection and highlighted cases where they often fail to make relevant disclosures.

FINRA staff spoke of its move in continuing its consolidation of its three exam programs. 2020 will bring in a new integrated exam program based on the business model of each firm. Examiners will be organized around that business model; there will be a single point of accountability for risk management and exam oversight. Sit-down meetings will be optional from 2020. FINRA is now giving more time in between exams, typically six months window but three months for higher risk firms. 

Meanwhile FINRA has added new resources to its website including a suite of compliance services. The Compliance Tools page has a number of links to templates, directories and checklists all designed to make compliance easier to achieve.