FINRA Intends To Probe Brokerages’ Compliance Culture

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FINRA Intends To Probe Brokerages’ Compliance Culture

FINRA intends to investigate whether complying with rules is part of brokerage firms’ culture during its examinations this year. The regulatory authority announced on Tuesday that it will more formally scrutinize how firm culture affects compliance and risk management practices.

“A firm’s culture is both an input to and product of its supervisory system, including its approaches to identifying and managing conflicts of interest and ensuring the ethical treatment of customers,” FINRA said. “This means that firms should take visible actions that help mitigate conflicts of interest and promote the fair and ethical treatment of customers.”

Other focus areas for FINRA exams include the management of conflicts of interest in the sale of proprietary products and products the firm is paid to sell, technology, anti-money laundering and firm liquidity.

Among the cultural aspects FINRA will investigate are whether compliance is valued at the firm and violations are not tolerated, whether the firm aggressively targets potential compliance problems, whether senior management serves as good role models and whether there are rogue “sub-cultures” that may not conform to the rules.

FINRA does not seek to impose a specific culture, but the primary goal of any firm should be to elevate the needs of its clients above its own, said Richard Ketchum, Finra chairman and chief executive. “There’s not a single model,” he said. “But if that model starts with, ‘Is everything we do in the customer’s best interests,’ that’s a good start.”

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.

According to Ketchum, brokers should not wait for the SEC to promulgate a fiduciary-duty rule that applies to all financial advisers. They should start meeting a fiduciary standard now.

“If brokers don’t put their customers first, they violate other rules,” Mr. Ketchum said. “It’s the best way to be compliant I can imagine, and it’s the best way to grow their business and increase the loyalty of their clients.”

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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