Firm Culture: FINRA to begin targeted exams of broker-dealers

    

Yesterday, the Financial Industry Regulatory Authority (FINRA) released a new, targeted examination letter on its website. In the statement, the self-regulator announced targeted exams of member broker-dealers to investigate, “how firms establish, communicate and implement cultural values, and whether cultural values are guiding business conduct.”

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According to FINRA, firm culture will continue to be a focus by the regulator in 2016. "Firm culture has a profound influence on how a broker-dealer conducts its business, including how it manages conflicts of interest.” FINRA said. 

FINRA went on to highlight the importance of ethical considerations when making business decisions, in order to protect investors and markets. It also noted the importance of firm culture for the firm's own best interest. FINRA cited more than $300 billion as an estimate of fines and legal costs incurred by firms since 2010 for offenses that can be traced, at least in part, to lack of a strong, firm culture. 

Broker-dealer members should note from the letter that FINRA specifically defines firm culture for the purposes of these exams as, "set of explicit and implicit norms, practices and expected behaviors that influence how employees make and carry out decisions in the course of conducting the firm's business." Find the the full finra article on Establishing, Communicating and Implementing Cultural Values here.

February’s letter closely aligns with FINRA’s 2016 exam priorities, released in January. In its annual letter to members, FINRA explained, "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.”

 

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