In January of this year FINRA release it “2018 Regulatory and Examination Priorities Letter”. High-risk firms and rogue brokers were one of the top concerns cited by President and CEO, Robert Cook.
Then on April 30, 2018, FINRA released it Regulatory Notice 18-15 regarding Heightened Supervision. FINRA noted that there are times where heightened supervision of an advisor may be appropriate. This notice stated that “FINRA requires member firms to establish and maintain supervisory systems for each of their associated persons and to test and verify annually that they have established reasonable procedures, including procedures for heightened supervision of associated persons, where necessary.”
In May at FINRA’s Annual Conference there was a discussion regarding the criteria FINRA uses to identify high-risk activity. This discussion noted that FINRA is looking for:
Several times this year FINRA has stressed the importance of “heightened supervision for high-risk brokers”. This should be one of the top priorities for your firm.
Do you have WSPs addressing these issues?
Are they causing you additional time, work, documentation, strain, and monitoring for your supervision department?
Our Eagle Eye application has an innovative “Heighten Supervision Mode”. The flexibility of this application empowers you to monitor your advisors at a variety of levels. For those that push the envelope a heightened level of supervision may be required. Eagle Eye will dig deep and with “Eagle Eye” precision discover and notify you of your advisors’ online presence.
Eagle Eye allows you to customize your supervisory approach without worry, and without additional charges or fees. Contact us today for your personalized demo and we will show you how our “Heightened Supervision Mode” will benefit your firm.
Did you read FINRA’s news release on October 1, 2018, entitled “FINRA Announces Plan to Consolidate Examination and Risk Monitoring Programs”? (Read the full-text news release)
FINRA President and CEO Robert W. Cook said, “By directing our expertise and resources in a more tailored way, we will become more effective at examining for compliance.”
Bari Havlik, who is overseeing this new program said, “Implementing a unified program structure will help make us a more agile and risk-focused regulator.”
So what does this mean for you as a supervisor?
This is a potentially massive shift in focus when it comes to FINRA exams and while it’s early, it appears that exams will now be more comprehensive with a wider area of focus than has been done in the past. Instead of focusing on only trading compliance or financial compliance, exams will likely be broader in nature. This new program is likely to zero-in on the supervision processes your firm has in place beyond the focused scope you’ve been used to.
This consolidation will force firms to dig a deeper into their WSPs and supervision processes including an examination of how they supervise the web.
We have over 15 years of experience in providing leading-edge compliance and web supervision software applications and website monitoring and archiving solutions for the financial industry.
Contact us today. Tell us your concerns when it comes to your “Risk Monitoring Programs” and we will share with you the solutions SiteQuest Technologies has developed for the financial industry.
Recently the Division of Securities, Utah Department of Commerce fined two credit unions and a licensed broker-dealer for failing to supervise the advisors working within the credit unions. (read the full report)
These credit unions are not registered broker-dealers or investment advisors. They entered into a networking agreement with a third-party broker-dealer to provide securities brokerage services to their credit union customers through registered representatives. In this case, the parties involved were not closely monitoring the actions and communications of these advisors with regards to how the advisors and the credit unions branded these services. The “lines were being blurred” and it was not clearly disclosed that these advisors worked for the third-party investment service provider, and not for the credit unions.
The emails, marketing materials, communications in print and electronic were not being supervised and in the view of the regulator, causing confusion with customers being misled. As a result, the broker-dealers and the credit unions were fined $750,000.
FINRA and the SEC are not the only regulatory agencies requiring firms to monitor their advisors. Each state has their own division of securities regulators.
Have you entered into a third-party agreement with another company to provide security brokerage services to their clients? Do you have advisors that are working in the facilities of these partners?
The biggest question of all is, “Are you sufficiently monitoring your advisors and their online presence?”
The use of our Eagle Eye application would have identified where the broker dealers’ presence was online such as social media, blogs, online articles, Yelp, YouTube and more, allowing you to review each URL. Our SQWatcher application would have alerted you to any changes on their websites ensuring that your supervision department could review and approve wording changes before they go live on the web.
We’d love to tell you more. Contact SiteQuest Technologies today to see how our applications can aid in your supervision responsibilities, saving you time and lowering your risk.
In September 2017, a West Coast financial firm was fined $35,000 by FINRA. It was found that the firm failed to maintain documentation or review the websites maintained by the firm’s registered representatives. (read full report) Are you responsible for monitoring your registered representatives’ websites and online presence? It can become a daunting and time-consuming task. SiteQuest Technologies brings you years of experience when it comes to web monitoring, archiving, and website analysis.
SQWatcher is our second product in this category and we have added cutting-edge technology that makes it even easier for you to keep track of what’s going on with your website(s). SQWatcher is configured with specialized “watchers” that look for the types of website changes you want to review. This technology offers a lot of flexibility allowing SQWatcher to adapt to your needs. Our archiving feature backs-up your website(s) daily so that you have a running history to help you quickly and easily respond to a regulator when audited.
In addition, this West Coast firm was also fined for “failure to establish a policy or system for approval, for their registered representatives’ business social media accounts, and did not review, approve, supervise, or retain any of the social media accounts maintained by registered representatives for securities-related business purposes.”
“failure to establish a policy or system for approval, for their registered representatives’ business social media accounts, and did not review, approve, supervise, or retain any of the social media accounts maintained by registered representatives for securities-related business purposes.”
Our Eagle Eye program will help you quickly identify any social media accounts that your registered representatives own. Allowing your firm to take action and comply with FINRA requirements. The system's automated documentation and screenshots of your findings will help you respond to a regulator.
Don’t let the time constraints of monitoring and documenting your advisor sites and web presence open you up to fines and the associated internal and external costs of a FINRA investigation like the one received by this firm. The cost of our Eagle Eye and SQWatcher programs are significantly smaller. Save time and money while protecting your firm from preventable fines. Our Eagle Eye and SQWatcher programs have two separate purposes, but working together they become a force multiplier in aiding our clients with their responsibilities.
Contact us today for your personalized demo. We will help match our programs to your needs.
Source: FINRA Case #2013034981501
Did you know that September is National Preparedness Month? Emergencies can happen at anytime and anywhere. Ready Business is a resource that assists businesses in developing a preparedness program by providing tools to create a plan that addresses the impact of various hazards. Preparedness is the key to ensuring that your business will continue after a disaster.
In light of this national observance, our blog is focusing on preparedness and preparing for an audit. We understand that the arrival of FINRA examiners at your firm may cause some concern—especially if it’s your first examination, or if it has been a while since your last audit.
How can I help my firm prepare for a FINRA audit?
Tell your staff about the audit. This also helps those staff members that FINRA needs to contact, identify and prepare the records and information that they need to have available when the audit begins.
Review past audits. If your firm has been audited in the past, it is worth reviewing the last audit report. Often past audits have recommendations for improvements. In conducting routine audits, FINRA’s purpose is to identify opportunities for improvement, which are in the best interests of the firm being audited and their clients.
Identify an audit contact person who can act as a liaison person to work directly with the auditor. This staff member should be responsible for ensuring that auditors have access to records and files or any other resources needed to complete the audit. This person acts as the main point of contact as the audit progresses so that FINRA can continue to keep your firm informed of how the work is going. Your firms’ contact person may find it useful to schedule meetings with FINRA periodically throughout the audit process to help monitor how things are progressing. This is a good way to facilitate communication, resolve issues on a timely basis, and correct any misunderstandings.
Cooperation is essential to a successful audit. Depending on the type of exception, if your firm can demonstrate swift corrective action, it may not appear in the final Examination Report.
Assemble appropriate and current information about your firm that you think might help FINRA in gaining an understanding of your administrative structure, nature of your operations, and knowledge of employee roles and responsibilities. Other information that might be helpful to have on hand could include key procedures or policies, organization charts and financial information such as budgets and sample management reports.
Hot Topics. FINRA is really focusing on social media and cyber security preparedness as part of their audits right now. Are you prepared to respond (with proper documentation) to a regulator when they inquire with regards to your supervision preparedness? Are you finding everything that you are required to monitor? Do you know for certain that your employees have properly disclosed all OBAs? Being prepared to address these "hot topics" will help in the event that you are audited.
A FINRA audit is an excellent opportunity to take a thorough look at the risks impacting your business and the controls put in place to mitigate those risks.
Please note that these are only general steps recommended to prepare for an audit. We recognize that specific steps and information requests that are unique to your firm will be identified and communicated to you as you interact with auditors.
About James Cella
James Cella is the President of a growing and innovative compliance technology provider called SiteQuest Technologies. James is a customer-centric individual and focuses on building and sustaining positive and lasting relationship with his clients and partners. James and his family are "super fans" of Utah Football and have attended nearly every home game since 2002. Go Utes!