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Finra Agrees to Give Greater Clarity on Broker-Dealer Firm Exam Findings

By Rita Raagas De Ramos November 30, 2017

Finra has revealed that within a matter of weeks it will publish a new report on examination findings that will – for the first time – let broker-dealer firms review the findings of industry-wide examinations conducted by the regulator, according to Finra CEO Robert Cook.

Presently, when Finra conducts an examination of a broker-dealer firm, “only that firm” sees the results, Cook says in a video Q&A conducted by Finra’s head of communications, Josh Drobnyk, and published online.

With the new report, broker-dealer firms will be able to see what Finra is seeing, “generally,” Cook says, noting that broker-dealer firms believe they will be able to extract examination information that’s relevant to their own firms and “can get ahead” of compliance requirements.

Cook says the new report format is “a little bit of an experiment,” but Finra’s intention is to publish it annually.

In cases where it’s appropriate, Finra would like “to offer ideas about best practices,” but the regulator doesn’t want “to stray too far in the area of telling people they have to do something that may not be appropriate for them,” says Cook.

Finra conducts between 1,500 and 2,000 risk-based cycle exams annually to assess identified risks and controls and determine whether its member firms are in compliance with federal securities laws, rules and regulations. During these exams, Finra assesses the firms’ business activities, the risks associated with those activities and other risk factors.

Finra typically visits broker-dealer firms in a one-, two- or four-year cycle, and this may include visits to branch offices, depending on the size of the firm and types of products.

Broker-dealer firms have previously said they rely heavily on Finra’s annual regulatory and examination priorities letter for clues about what could lie ahead in the event they undergo a Finra examination. The report aims to provide firms with more information.

Such a need was often cited by broker-dealers in attendance at Finra’s annual conference in Washington, D.C. in May.

At the conference, Kenneth Wagner, chief compliance officer at investment banking and asset management firm William Blair & Company, said without an examinations findings report, having a “network” of contacts of compliance officers at other firms has been very helpful in preparing for Finra exams because it gives “a sense of what’s coming down the road based on their own experience.”

Robert Cook (Getty)

Cook first brought up the possibility of an examination findings report in his 2017 regulatory and examination priorities letter published in January. In that letter, he noted broker-dealer firms “have suggested that publishing common examination findings would help inform firms of deficiencies Finra has observed, including in its areas of priority, and allow firms that have not yet been examined to fix any similar deficiencies.”

At that time, he said such an examination findings report would outline “key findings from examinations in selected areas.” He added that the report would “alert firms to what we are seeing from a national perspective,” and “serve as an additional tool firms can use to strengthen the control environment for their business.”