Recent FINRA examination findings show that many firms struggle with properly documenting needs analyses, implementing appropriate training, and maintaining adequate records for their Firm Element programs. This guide focuses on the four core components required for compliance: conducting a thorough needs analysis, developing a substantive written training plan, ensuring appropriate coverage of registered persons, and implementing proper books and records maintenance.
Step 1: Conducting a Thorough Needs Analysis
The needs analysis serves as the foundation of your Firm Element program and is frequently scrutinized during FINRA examinations. Your analysis should identify training opportunities and provide a solid basis for your written plan.
Key Areas to Include in Your Analysis
Firm Structure Analysis: Document your business model and the types of securities business conducted. Catalog job functions and their required knowledge and skills. Note any changes to your firm’s structure or supervisory framework since your last analysis. Assess your representatives’ knowledge levels and examine your customer base demographics to identify potential training needs.
Policies and Procedures Review: Review new and updated firm policies, products and services, evaluate the complexity of offerings and any changes to features or processes. Consider how market conditions, new technologies, and marketing strategies might affect training requirements, particularly regarding best interest and suitability obligations.
Regulatory Review: Analyze examination priority letters, regulatory sweep letters, and changes to securities laws and regulations. Review your firm’s FINRA CE Regulatory Element performance reports to identify knowledge gaps. Document regulatory actions against your firm or representatives and review industry regulatory notices relevant to your business.
Complaint and Incident Analysis: Review customer complaints, litigation, and arbitrations to identify trends that might indicate training deficiencies. Access findings from internal investigations, audits, and compliance testing and be sure to evaluate operational risk assessments and control failures that could be addressed through enhanced training.
Collaborative Input: Gather feedback from department heads, such as operations, supervision, and risk management. Including perspectives from legal and compliance staff is recommended to ensure your program addresses current regulatory concerns.
Step 2: Developing a Substantive Written Training Plan
Your written plan provides a roadmap for your Firm Element program, detailing who will be trained, what content will be covered, and how training will be delivered.
Essential Elements of Your Written Plan
Identifying Covered Persons: Clearly identify all covered registered people and group them by business area and function. Differentiate training objectives for different groups, such as registered representatives versus supervisors, and consider whether individuals are client-facing or serve in a fiduciary capacity when designing their training.
Defining Training Content: Identify specific courses for your covered people based on your needs analysis. Consider a risk-based approach to prioritize training topics. Include content that enhances knowledge of the financial industry beyond specific roles and indicate whether materials will be developed internally or sourced externally.
Establishing Timeframes: Set clear deadlines for training completion and determine whether to concentrate on training in one quarter or spread it throughout the year. Consider workload implications and whether to allow grace periods for extenuating circumstances.
Selecting Delivery Methods: Identify how training will be delivered, whether through in-person sessions, webinars, computer-based courses, or compliance bulletins. Ensure your chosen methods allow for documentation of both content and completion.
Step 3: Ensuring Appropriate Coverage of Registered Persons
Your program must identify and include all covered registered people as defined by FINRA Rule 1240, with content tailored to their specific roles and responsibilities.
Identification and Classification: Implement a system for identifying all covered people and regularly update this roster as people join, leave, or change roles. Classify individuals by function and supervisory responsibility to facilitate targeted training.
Tailored Content: Ensure training content addresses the specific knowledge and skills required for each position. Distinguish between training for new versus experienced personnel and lastly, address regulatory requirements for specialized registrations and supervisory positions.
Supervisory Focus: Develop specialized content for individuals with supervisory responsibilities, covering their obligations under FINRA Rule 3110. Ensure supervisors understand their oversight role for the Firm Element program itself, including monitoring completion by their subordinates.
Monitoring Completion: Implement processes for tracking training completion with regular reporting mechanisms. Establish clear consequences for non-completion and escalation procedures for persistent non-compliance. Document all monitoring activities and remedial actions taken.
Step 4: Implementing Proper Books and Records Maintenance
Maintaining comprehensive records is essential for demonstrating compliance during examinations.
Essential Documentation Requirements
- Needs analysis documentation, including sources consulted and conclusions reached
- Written training plan with updates and modifications
- Records identifying all covered people and their completion status
- Course materials, including content and assessments
- Completion records for each covered person, including dates and scores
- Evidence of supervisory reviews and actions taken to address non-compliance
- Documentation of program modifications based on feedback and results
Retention and Accessibility: Maintain records for at least three years, with the first two years in an easily accessible place as required by SEC Rule 17a-4. Ensure your documentation system allows for prompt retrieval during regulatory examinations.
Supervision of Records: Assign clear responsibility for overseeing the documentation process by conducting periodic reviews to ensure all required records are being maintained properly. Document these reviews, including findings and any remedial actions taken.
Technology Solutions: Consider using electronic learning management systems to automate record-keeping, reduce errors, and provide consistent documentation. Ensure any technology solution includes appropriate security controls and can produce comprehensive reports for regulatory purposes.
A well-designed Firm Element program not only satisfies regulatory requirements but also strengthens your firm’s culture of compliance and reduces risk. By focusing on thorough needs analysis, substantive written planning, appropriate coverage, and proper record-keeping, you can create a program that enhances your representatives’ knowledge and professionalism while meeting FINRA’s expectations.
What’s Next?
What are some good resources for building Firm Element curriculum? For comprehensive guidance, refer to the CE Councils detailed FAQ section found here. And of course, don’t forget to check out Quest CE – your go-to solution for creating and managing top-notch Firm Element programs that meet all regulatory requirements, while providing engaging and effective training for your representatives! To learn more about our Firm Element CE offerings, click here.
