The recent release of regulatory exam guidelines by the Financial Industry Regulatory Authority (FINRA) should serve as a wake-up call to the broker-dealer securities market, according to experts at Wolters Kluwer Financial Services. On Jan. 5, FINRA released its Regulatory and Examination Priorities letter to its members, citing specific areas of focus for 2016: culture, conflicts of interest and ethics; supervision, risk management and controls; and liquidity management.

FINRA’s rules create an obligation for firms to establish and maintain a system to supervise the activities of their associated persons that is designed to achieve compliance with securities laws and regulations, and with FINRA rules. In 2016, FINRA says it will focus on four areas where it has increasingly raised concerns around securities firms’ business conduct and the integrity of the markets: management of conflicts of interest, technology, outsourcing and anti-money laundering (AML).

While metrics around assessing a firm’s liquidity management practices are fairly well-established, measuring a firm’s commitment to compliance practices could well represent a new level of challenge for many in the broker-dealer market.

“Assessing a firm’s compliance culture is an area of increasing regulatory emphasis, as FINRA’s latest communiqué shows,” says Barbara Boehler, securities subject matter expert at Wolters Kluwer Financial Services. “But it poses an equally challenging area in which firms must demonstrate their compliance. Reading FINRA’s list of priorities clearly presents securities firms with a heightened need for expertise in managing these regulatory compliance issues.”

FINRA will evaluate how culture affects a firm’s compliance and risk management practices, focusing on the frameworks firms use to develop, communicate and evaluate conformance with their culture. Additionally, its letter explicitly indicates that firms “should be equipped with necessary resources to help them navigate a complex and changing regulatory and market environment.”

Boehler notes that the following indicators will be essential parts of the agency’s regulatory oversight:

  • Are control functions valued within the organization?
  • Are policy or control breaches tolerated?
  • Does the organization proactively seek to identify risk and compliance events?
  • Are immediate managers effective role models of firm culture?
  • Are sub-cultures that may not conform to overall corporate culture identified and addressed?

“It is not enough for a firm to have a process,” said Boehler. “It must be able to convincingly demonstrate that process to the regulators, and thereby help advance a culture of compliance throughout the organization.”

For more information, see FINRA 2016 Regulatory and Examination Priorities Letter and visit the OneSumX site.

About Wolters Kluwer Financial Services
Wolters Kluwer Financial Services provides customers worldwide with risk management, compliance, finance and audit solutions that help them successfully navigate regulatory complexity, optimize risk and financial performance, and manage data to support critical decisions. With more than 30 offices in 20 countries, our prominent brands include: AppOne®, AuthenticWeb™, Bankers Systems®, Capital Changes, CASH Suite™, GainsKeeper®, NILS®, OneSumX®, Uniform Forms™, VMP® Mortgage Solutions and Wiz®. Wolters Kluwer Financial Services is part of Wolters Kluwer, which had 2014 annual revenues of €3.7 billion, employs 19,000 employees worldwide, and serves customers in over 170 countries across Europe, North America, Asia Pacific, and Latin America. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.