Key Takeaways from the FINRA Conference

More than 1,000 attendees and approximately 150 speakers attended FINRA’s annual conference back in May. Among the attendees were several vendors, including Quest CE, who showcased their compliance solutions at the exhibitor fair. The three-day conference contained a number of sessions that covered diverse topics such as outsourcing/vendor management, cybersecurity, AML hot-topics, and much more. Each topic sparked conversations regarding their impact on firms’ compliance operations. While Quest CE took home pages of great information, provided below is a synopsis of the top takeaways from the conference.

Cybersecurity

In typical fashion, cybersecurity was a major focus of discussion, even in sessions not directly tied to the topic. In one breakout, it was revealed that of the FINRA-regulated firms examined this past year, 1/3 of them had client losses that were cyber related. Particularly, phishing and third-party wires continue to cause issues for firm’s compliance departments. To protect against such breaches, FINRA recommends CCOs pay special attention to their remote branch offices, policies and procedures, incident reporting process, internal training, system entitlements, vendor responsibilities and steps for terminating employees (i.e. how quick is it?).

High Risk Brokers

FINRA made clear its intentions to strengthen controls on brokers with a history of significant past misconduct to ensure greater accountability for firms that choose to employ these high-risk individuals. The self-regulatory authority discussed plans to require firms to adopt heightened supervisory procedures, especially while a statutory disqualification request is under FINRA review, or the broker is appealing a hearing panel decision. FINRA also mentioned that it will continue to impose more targeted exams on firms that employ representatives with checkered backgrounds. When asked if FINRA would begin releasing the names of the high-risk brokers they are pursuing, FINRA’s Susan Axelrod responded by saying “all that information is really already available to you [through Broker Check]. If we’re doing a specialized individual exam, that’s the best clue we can give you.”

FINRA 360 Program

A large portion of Robert Cook’s opening remarks included conversation on the new FINRA360 program. In his speech, Cook outlined several objectives the program is intended to address, which include 1.) FINRA’s operations, including whether they are optimal for sharing information and establishing consistent standards; 2.) The use of data technology, including how they can best support efficient policy and decision-making; and 3.)The tools and metrics used to assess the success of FINRA’s various regulatory programs. To provide context of this work, Cook cited several examples of what the program is aiming to achieve. Most recently, FINRA committed to a substantial investment in its training of new examiners, as well as an organization-wide policy that encourages the use of video conferencing for on-the-record interviews, which would reduce costs for both FINRA and firms.

Regulatory Overlap

Amid urgent calls from attendees, a major pain point brought up throughout the conference was the overlap and miscommunication between regulators during onsite examinations. Firms voiced their concerns over having two (or more) regulators in the office at once and the impact that had on their internal operations. When asked about the issue, FINRA’s Susan Axelrod said, “We don’t always know what everyone else is doing. There is a lot of communication going on but we don’t always get it right.” Another FINRA representative followed up by saying, “Nobody wants to impose regulatory duplication.” The resounding advice from the panel was to communicate with your FINRA examiners about conflicting exams/requests, and they would do their best to adjust timelines, share data, communicate intent or split focus.