I really enjoyed the opportunity to be an exhibitor at this year’s FINRA Small Firm Virtual Conference. Although the format might have been different this year, the sessions were still filled with the same focus on effective compliance practices for smaller firms.
One of the key themes I heard at the event throughout the sessions was the need for consistency in policies and procedures, and for complete and consistent documentation.
During the session Common Examination Findings, a panel of FINRA staff and industry practitioners discussed effective practices for preparing for examinations and updating compliance procedures and practices based on lessons learned. Key points raised during the conversation included:
Best practices require effective controls and procedures, so keep policies and procedures up-to-date. Not doing so can lead to gaps in compliance. Make sure that policies and procedures are tailored to the specific needs of your organization. “Tailor procedures to right size fit the firm and grow the procedures as the firm grows and changes.” And make sure to memorialize changes made to policies and procedures. FINRA will be looking for and testing documentation.
Firms must be able to identify red flags on a systemic basis, holistically and over time. Reviewing things transaction by transaction is not enough. Firms can utilize exception reports to highlight red flags, and there’s opportunity to use reporting for gap analysis.
Keeping an eye on what your reps are doing is critical. Certain Outside Business Activities can potentially involve misconduct or create conflicts of interest that may expose both firms and customers to potential risks. Proactive compliance polices are needed to mitigate that risk, including annual attestations and a strong supervisory system to properly vet OBA’s. Managing MNPI and Insider Trading info also continues to be especially important as work from home continues to be the norm.
MNPI Remains a High Risk Area for Compliance
Another key theme of the conference was the impact of COVID-19. During the Fireside Chat, Bari Havlik Executive Vice President, FINRA Member Supervision, spoke about the impact of COVID on small firms. According to Ms. Havlik, overall firms have been faring well managing the impact of COVID, but firms with paper based systems faced more challenges than firms with electronic records.
The remote working environment also increases opportunities for fraud and misconduct. FINRA Regulatory Notice 20-13 reminds firms to be aware of fraud during the pandemic, where bad actors can take advantage of “the increased risks and challenges presented during the COVID-19 pandemic. In addition to new scams focusing on COVID-19, previous scams may also find new life as fraudsters adapt to and exploit recent events and related vulnerabilities, especially those related to the remote working environment.”
Start planning now for FINRA renewals.
At MCO, we have compliance solutions designed for small firms that cover the hot topics that we heard about at the conference, helping firms proactively monitor and manage:
Authorization, Registrations & Licensing
Learn more about MCO’s scalable and affordable Small Firm Compliance solution. And if you’re ready for a conversation about how MCO can help you manage your company’s code of conduct activities and mitigate the risk of misconduct, let us know.