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FINRA Regulation to Scrutinize Firm Cultures in 2016

By Erwin J.Shutak, Esq.  of Shustak Reynolds & Partners, P.C. posted on Friday, January 8, 2016.

The Financial Industry Regulatory Authority (“FINRA”) announced this week it will more formally scrutinize how brokerage firm’s culture affects compliance risk management pratices.

In its 13 page examination priorities letter, FINRA announced “A firm’s culture is both an input to and product of its supervisory system, including its approaches to identifying and managing conflicts of interest and ensuring the ethical treatment of customers”.  FINRA added “This means that firms should take visible actions that help mitigate conflicts of interest and promote the fair and ethical treatment of customers”.

Among the cultural aspects FINRA will assess are whether compliance is valued at the firm and there is no tolerance for violations; whether the firm aggressively targets potential compliance problems; whether senior management serves as good role models and whether there are rogue “sub-cultures” that may not confirm to the rules.

In many firms, compliance is viewed as a necessary evil.  Compliance is not an income generating department and is tolerated and vilified in varying degrees.  This new focus from FINRA puts the compliance function, and firm’s attitudes toward compliance, front and center and requires member firms to develop, implement and highlight a good compliance system and a firm culture that values compliance.  

Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors.  For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com

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