Financial firms bracing for more troubleshooting from the Financial Industry Regulatory Authority should stick to traditional values: making sure their advisors understand the products they sell and truly acting in the best interest of the client, FINRA Chairman and Chief Executive Richard Ketchum said Tuesday.
Those core principles still apply even as FINRA, the largest U.S. independent securities regulator, moves forward with plans to tweak the way they evaluate firms, Ketchum said in a keynote address at FINRA’s annual conference.
As FINRA implements new changes, it also plans to work with a deeper understanding of how firms operate, Ketchum said, following two years of listening to industry feedback. As part of those efforts, FINRA has ramped up its district staff to a total of 90 following the hiring of 20 new coordinators. That expansion is aimed at enabling better communication and surveillance.
“Frustrations range from, ‘You just don’t understand my firm well enough’ to ‘I spend too much time feeling like I’m interacting and reacting to examiners that are checking boxes,’” Ketchum said of financial firms. “That is something that we fundamentally want to change.”
For FINRA’s examination program, there are certain changes that firms can expect, according to Ketchum.
In 2011, FINRA has planned for its examination staff to spend more time at branch offices than at home offices. This strategy will vary from firm to firm, Ketchum said, and is based on the fact that most misconduct is found where the point of sale happens.
During examinations, FINRA will also ask for detailed data related to securities and financial transactions, Ketchum said. That could include purchasing sales data, customer data and data on a broker.
FINRA’s examiners should also be better prepared with questions from the time an examination begins following the use of better risk analysis, Ketchum said. The examiners will also be using risk and compliance scenarios to allow them to make better use of their time during an exam.
As firms face examination and other changes, they can be prepared by paying attention to fundamental values, Ketchum said. That includes making sure that financial advisors are completely educated on the financial products they sell, Ketchum said, particularly when it comes to Regulation D offerings, and truly operating with the best interest of the customer in mind.
And while firms are tempted to reduce their expenses now, Ketchum said, they should makes sure they have resources in place to deal with new regulatory focus areas.
“This is not the time to reduce your commitment to financial technology or otherwise on compliance investment,” Ketchum said.
FINRA’s annual conference comes amid an ongoing regulatory debate as to whether to create a self regulatory organization for investment advisors. FINRA has advocated for expanding its oversight to include both investment advisors and broker-dealers.
The ongoing debate could move forward with hearings this summer, Ketchum said Tuesday in a press conference, while it is impossible to predict if implementation will be “this year, next year or the year after.”
“It’s difficult to predict what priorities Congress will pick up this year other than the obvious concerns from the deficit standpoint,” Ketchum said.
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