Last week FINRA published its 2016 Regulatory and Examination Priorities Letter. As in past years, FINRA identified recurring issues as well as new areas that broker-dealers should focus on as part of their regulatory due diligence. This year’s letter is no exception, as examiners will assess supervision, risk management and controls in areas that include: cyber-security, outsourcing, AML controls, micro-cap securities, sales practice, market integrity, the management of conflicts of interest, and REG- Sho. One area compliance personnel should put on their radar, is Firm Culture.
Setting the tone for a firm’s culture starts at the top of the organization. Senior management has the ultimate responsibility for the establishment and maintenance of a firm’s overall compliance effort. They must be committed to enforce a comprehensive system of policies, procedures and supervisory controls to monitor all business activities. To be most effective, oversight of the firm’s policies needs to be performed by experienced supervisors who have the authority to take corrective action when needed.
Firms should regularly examine their internal control systems to reasonably ensure they are designed to monitor the activities of its employees. I do not believe FINRA expects a uniform model of firm culture for its members, but focus on whether senior management takes an active role in compliance and risk management.