© 2020 Arizent. All rights reserved.

How to make FINRA exams less onerous

Register now

WASHINGTON -- Firms might not relish a visit from FINRA examiners, but there are steps they can take to make the experience a smoother and stay in the regulator's good graces.

A FINRA official and two brokers who recently went through exams discussed the process at the regulator's annual conference, and generally agreed that routine cycle exams don't have to be the regulatory equivalent of a root canal.

For Donna DiMaria, CEO of Tessera Capital Partners in Penfield, New York, that starts with keeping current with the regulator's priorities.

"It's a really good way to assess yourself ― to say, can I answer all of these questions that FINRA will ask if they come on site," DiMaria says. "So you'll know it's an area of interest to the regulators, plus it gives you an advance chance to make sure you've dotted all your i's and crossed all your t's."

Regulators have revealed what kind of issues advisors must address if faced with a review.
May 8

Erin Vocke, district director of FINRA's New Orleans and Dallas offices, says that her team is sympathetic to the disruption that a cycle exam can bring to a firm, particularly for brokers who might be dealing with other regulators. She notes that FINRA has revised its exam process, so that, instead of the old model where examiners would essentially "camp out" at a firm, they are now doing most of the document request and review ― the meat of the process ― well ahead of time, so that in many cases the site visit is more of a formality than anything else.

Kim Muhota is Vice President in the Financial Services practice of SSA & Company.
September 28
John Rodgers is COO & Managing Partner, SSA & Company. He guides day-to-day operations, sets and steers SSA & Company’s business strategy, and oversees the Financial Services, Insurance, EMEA, and Healthcare practices. John has significant financial services operating and management experience with Aetna Life & Casualty and Cigna and has multiple insurance-related designations, including CPCU, RPLU, ARM, and AIS. He can be reached at jrodgers@ssaandco.com
September 28
David Schimel is a senior research scientist at the NASA Jet Propulsion Labratory, and is the chairman of Entelligent.
September 28

She also stresses that FINRA makes efforts to coordinate with other regulators such as the SEC to avoid overlapping on a particular firm. But she acknowledges that that is an imperfect system, and encourages firms to speak up so they don't have to provide the same sets of information to two different regulators.

"If you are being examined by another regulator and FINRA calls, make sure you let them know that, hey, so and so was just in and they looked at our books and records, and make sure that FINRA is coordinating with those individuals," Vocke says.

DiMaria takes the point further, recalling an exam at her firm when FINRA requested materials on a tight turnaround. At first she scrambled to meet the deadlines, but then would notice that the exam team took a few days even to look at the documents.

"I don't have a problem turning things around quickly, but if it's just going to sit there then you've got to give me a little more leeway so I can manage my day-to-day business, too," she says.

Explaining this to the exam team, she bought a little more flexibility on the deadlines, underscoring the importance of keeping open the dialogue with the examiners.

"We can't put our businesses on hold to meet every request for it to sit there and not get looked at right away, so I think it's really important that you learn to communicate with your exam staff. If you're not sure of a request that they made, ask them," DiMaria says.

Don Winton, chief operating officer at Crews & Associates in Little Rock, Arkansas, had a similar experience with FINRA officials asking for documents at what seemed an accelerated pace. He protested, and, like DiMaria, won some wiggle room for producing his firm's books and records.

Winton advises firms to make a show of good faith when hosting FINRA examiners, suggesting that, if possible, they act to shore up some of the compliance shortfalls the exam team has identified while the FINRA staff is still on-site.

"If you can fix something before they leave, if you can make their exception list one or two items smaller before they get off campus, I really encourage you to do that," he says.

For reprint and licensing requests for this article, click here.