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Compliance – FINRA Disciplinary Actions

Have you read through the FINRA Monthly & Quarterly Disciplinary Actions lately?

My question is this: was the NASD just out of touch seven plus years ago, or were the exams just a routine ‘check the box’? Many of these compliance infractions should have been obvious to an examiner – as it appears they are today. This lack of findings gave the member firms executives/owners a false sense of security: “hey, we got a clean audit, we’re in good shape”. Today the results of a routine exam have a different outcome. This should be of concern not only to the CCO, but executives as well.

When do you think the light went on for the NASD to start conducting more vigilant exams? Seems to have been when the conversation of NASD/NYSE merger to form FINRA commenced. Simple test – review the number of FINRA Disciplinary Actions up to early 2007 (month of May to be specific). In June the number of actions began to build to a level that has remained somewhat consistent up until today. Do you think that suddenly, Advisors started being non-compliant? It has been over seven years and there has been no decrease in compliance infractions. CCO’s still cannot put controls in place fast enough to “right the ship”.

Could this be a result of conflicts of interest within the firms between compliance and business? Is it that the reward of wrong-doing outweighs the risk of disciplinary actions – monetary and reputational? Is it that the CCO has no authority or budget to put corrective actions in place? Whatever the answer, it desperately needs to be addressed. Clients are being injured and our securities markets are suffering. The objective of the SEC is to maintain vibrant capital markets. Mary Jo White is clear when it comes to non-compliance; at any level, it will not be tolerated and FINRA, which is governed by the SEC is following suit.

Operating a compliant business just makes good sense – and a strong compliance program should not stifle the opportunity for growth. Assuming we are all capitalists, in business to create our own definition of success – doing it compliantly will add more value by creating and retaining a strong reputation while avoiding severe financial penalties.

There are a number of compliance resources available within the industry. Engage a compliance consultant – this may reduce costs and in many cases, broaden the depth of your team. You can also recruit an experienced employee if a full-time role is needed. But doing nothing and not knowing what it means to be compliant in the securities industry is not the wise choice. Ms. White has said repeatedly – bad actors will be punished and being non-compliant is no longer just a part of the cost of doing business – you will feel the weight of the regulators – SEC and FINRA, and they have a heavy hammer.

Yours in Compliance,
RegMaven, Inc.

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