FINRA Vows to Step Up Internal Compliance Procedures

The Securities and Exchange Commission has filed an administrative complaint against the Financial Industry Regulatory Authority accusing one of the latter’s directors of changing three sets of staff meetings minutes that SEC officials had requested. These revisions made the documents, which were delivered in August 2008, incomplete and inaccurate. This could affect FINRA’s chances of becoming the SRO for investment advisers. Currently, FINRA serves that role for just broker-dealers.

It was FINRA that reported the document problem to the Commission and then worked with the agency to resolve the matter. The SRO then appointed new leadership in the Kansas office (the director has since resigned) where the tampering took place and implemented changes that improved procedures for document handling. Modifications included more live and online ethics training, as well as greater document integrity. Other undertakings FINRA has agreed to:

• Train workers about past document integrity problems • Create a podcast on document integrity to show current and prospective employees • Talk about the importance of document integrity at yearly regulatory meetings, townhall gatherings, and at Senior Management onsite visits at district offices • Mandate that senior Office of Liaison and Counsel meet with every business that is about to undergo an on-site exam before the documents are generated for the SEC
The SEC has ordered FINRA to hire an independent consultant, who will review current FINRA policy and procedures and training, determine whether those that already exist are reasonable and properly implemented so that they can guarantee that documents given to the SEC are in integrity, and make recommendations for any improvements.

The Consultant will have to submit a report of recommendations and findings to the FINRA Board. The Board will then have thirty days to implement these recommendations, while also notifying the Consultant of the recommendations it finds to be impractical or burdensome. In such instances, the Board and the Consultant will try to find an alternative recommendation that can fulfill the same objectives that the original recommendation would have satisfied. If an agreement on this alternative is reached, then the Consultant will amend the recommendation and reissue the Report. If no agreement on an alternative is reached, then the FINRA Board will have to adopt the original recommendation made by the Consultant.

By settling the case, FINRA is not admitting to or denying the SEC allegations.

It is FINRA’s job to ensure broker-dealer compliance. It is therefore no wonder why any failure to ensure compliance among its own employees might raise some flags of concern.

Our securities fraud attorneys represent clients that have sustained financial losses because of broker misconduct. Your chances for recovering the maximum amount possible go up when you decide to work with an experienced stockbroker fraud law firm. Shepherd Smith Edwards and Kantas, LLP represents investors across the US.

Finra director doctored records before inspection: SEC, Investment News, October 27, 2011
Finra Settles in Battle of Overseers, Wall Street Journal, October 28, 2011
SEC Orders FINRA to Improve Internal Compliance Policies and Procedures, SEC, October 27, 2011
Read the administrative order

More Blog Posts:

FINRA Cannot Enforce Disciplinary Actions Through the Courts, Says Federal Appeals Court, Stockbroker Fraud Blog, October 6, 2011
FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisors, Stockbroker Fraud Blog, September 13, 2011
FINRA Wants Amerivet Securities Inc.’s Lawsuit Seeking to Inspect the SRO’s Records Dismissed, Institutional Investor Securities Blog, March 26, 2011

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