Officials with the Financial Industry Regulatory Authority discussed their evolving approach to on-site examinations recently, ThnkAdvisor reports.
FINRA’s Examination team examines every member firm on a regular basis to ensure firms remain in compliance with FINRA rules and federal securities laws and regulations. The exams are at the core of FINRA’s mission of investor protection and market integrity.
Early in the COVID-19 pandemic, FINRA had to halt its on-site exams. But during a recent FINRA podcast, the head of the authority’s national exam program, Michael Solomon, said examiners began to go on-site more frequently in 2022 and added, “We’re ramping that up pretty substantially this year.”
But he added examiners will spend less time on-site now as the authority makes adjustments to its methods of conducting exams.
“Now we’re assessing each exam individually to determine what the utility is for going on-site based on what reviews we’ve scoped in on those exams, based on the risk or impact of the firm itself, or what we learned during the course of the exam may warrant us to spend some time on-site or if we think the exam may be more efficient on-site,” Solomon said on the podcast.
He also noted that while each of the 3,400 member firms is examined at least every four years, FINRA’s Risk Monitoring teams assess the frequency of exams that are needed based on the potential risk involved with each particular firm.
“A new firm we have to examine within the first 12 months of their membership,” Solomon said. “But a firm, if they increase in their size, they take on a new business model or structure, if they add employees or registered reps, if they hire some folks with a questionable background, that may increase their risks so they may have a back-to-back exam.”
The vice president of FINRA’s exam program, Joseph Sheirer, added that the authority’s Exam and Risk Monitoring units look to identify evolving issues that help determine the approach to examinations for each firm. For example, he cited off-channel communications as a particular area of emphasis this year in light of recent cases that have come before FINRA and the Securities and Exchange Commission.
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