Tips on How to Prepare for Your Next FINRA Exam

FINRA exams are challenging for everyone, however, there are several steps firms can take to better prepare for an onsite investigation.  At the FINRA annual conference this year, several FINRA staff members discussed tips and best practices to help firms improve their audit success, emphasizing important phases in the cycle examination process and providing effective insight into what exactly examiners are looking for when they come onsite.

BEFORE THE AUDIT

What should I expect?

Before the exam takes place, FINRA will observe daily news and trends on the firm, note changes in structure/hierarchy and most likely request copies of customer complaints. They will also review prior exam issues to see if those areas have been addressed and look for examples of implementation/follow through.

Pre-Audit Tips

  • Conduct an RCA (Risk Control Assessment) before the exam.
  • Bring timeline issues up right away so FINRA can preemptively accommodate changes (e. conflicting exams/employee vacations).
  • Ask FINRA what they are looking for if you don’t understand what they want or why they want it.
  • Don’t wait for an exam to begin. Once the priorities letters come out, spend 6-8 weeks breaking them down and dissecting how your firm handles each item.
  • Designate a specific “Gateway Person” to be the main communicator, documenter and provider of FINRA requested reports.
  • Get to know your FINRA examiners to develop a comfort level.
  • Vet any new products – are your appropriately training your representatives?

DURING THE AUDIT

The exam is here. What is FINRA looking for?

According to FINRA, when their audit team arrives onsite for the exam, they are looking for a few specific things. To start, they want to see the firm’s internal controls in action. To do this, they’ll take the firm’s Written Supervisory Procedures and compare them, side-by-side, to daily tasks and operations to see if they’re doing exactly what they say they are. Not only that, but they’ll test compliance tools and review surveillance systems to see how compliance is responding to, and escalating, risk alerts. FINRA’s panel members assured attendees that they are not looking for perfection, simply reasonableness.

Vendor Tip

Make sure any vendor system you’re using is compliant with the rule you’re using it for. Test it to ensure you can get the data you need so it’s not delayed or chaotic when data is needed for a FINRA exam.

AFTER THE AUDIT

What should I do immediately following my audit?

  1. Address the problems quickly and efficiently, inviting the necessary people to the conversation.
  2. Find solutions to the bigger, broader issues that may have resulted in a breach in communication, technology or process.
  3. Adopt a growth mindset and use the results of your exam as opportunity for improvement.
  4. Identify areas of risk and develop firm-wide and individual training programs.
  5. Review FINRA’s formal recommendations, regardless of whether a fine or disciplinary action was imposed.
  6. Document your resolution process. When FINRA or another regulator returns to your office, they will want to see that improvements were made.

Expert Tip

Find firms similar to yours to talk to, share findings with, and formulate achievable solutions.

A FINRA exam 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. Many firms view an exam as an opportunity to educate employees on compliance and supervision, and to clarify the distinction between these two functions. Concerns related to registered representative activity, such as sales practice issues, that surface during an exam should be addressed in your Continuing Education Needs Analysis and incorporated into your Firm Element Training Plan.

To view Quest CE’s Firm Element Course Catalog, click here.