FINRA recently released the 2021 Report on FINRA’s Examination and Risk Monitoring Program.
This report combines some of the information firms are accustomed to seeing from their regulator, the Report on Examination Findings and Observations and the Risk Monitoring and Examination Program Priorities Letter.
The report brings together some of the top findings during last year’s examinations and the areas where the regulator intends to focus during the coming year’s examinations.
Combining the two reports may make it easier for firms to understand the common challenges facing them and proactively prepare and guard against issues that are regularly occurring in the industry.
One of the top exam findings in this area: some firms are not completing appropriate due diligence to ensure their regtech vendors are actually in full books and records compliance. FINRA encourages firms to complete thorough due diligence, testing, and verification to ensure the compliance technology vendors they select are actually in compliance with the necessary regulations.
Cybersecurity was highlighted as an emerging risk to firms, based on the rapid increase in tech-related incidences (system outages, imposter websites, ransomware, and more). Other areas covered by the firm operations section include:
The reviews this year are likely to be more intensive than those conducted the previous year. They will evaluate firms’ processes, practices, and conduct related to providing service and disclosures that meet the regulatory requirements for customer/client best interests.
FINRA also included a link to content focusing on reg bi best practices and compliance protocols.
Firms are also encouraged to create more comprehensive processes for digital communication management. This should include:
These rules are a reminder to be punctilious regarding the timeliness, accuracy, and completeness of audit trail data, in addition to ensuring adherence to compliance standards.
Again, these guidelines are difficult, if not impossible, to meet without 100% books and records compliant technology in place. The level of detail required, the timestamps, the information required of the individual reporting, it’s far too much to handle manually, particularly at a time when people are working in disparate locations.
Other areas for consideration include properly evaluating and measuring credit risk and having a clear understanding of exposure that could occur from affiliates.
Once you find items that play a significant role in your standard business practices, FINRA highly encourages making proactive decisions to incorporate the proper steps or processes into your compliance and organizational efforts.
Don't wait until you know the examiners are headed your way to start making changes. Start updating processes where needed, ensuring you have the right compliance technology in place, and ensuring you've done your best to keep your organization in line.
And take special note of the areas of emerging risk outlined in the document. These areas can give your compliance experts a starting point to research, determine changes that may be necessary for the coming years, and set the level of risk you're comfortable with. When you're able to dedicate yourself to looking forward, you can turn compliance into a truly strategic advantage for your firm.