FINRA makes further changes to Examination Program

19 December 2019

FINRA makes further changes to Examination Program

Following on from FINRA’s announcement to consolidate its Examination and Risk Monitoring Programs, FINRA is set to further restructure its operating model. FINRA plan to integrate the separate financial, business conduct, and trading examination programs into a single, unified program. This unified approach aims to create a better and smoother service for its members.

With the restructuring of the examination program, FINRA hopes to more effectively oversee its examination program, improve consistency, eliminate duplication and create a single point of accountability for examinations and risk monitoring for each firm.

FINRA is planning a move toward a program structure that tailors its expertise and resources in a more strategic way. When the new structure is rolled out in 2020, FINRA member firms will be grouped into one of five main business models:

  • Retail
  • Capital markets
  • Carrying and clearing
  • Trading and execution
  • Diversified.

In addition to the overarching changes and plans, FINRA is making the following specific modifications to its examination program:

  • Timing of exams has been updated to allow, where appropriate, for a reasonable period of time (3-6 months, depending on a firm’s risk) between a firm’s receipt of the prior year’s examination report and the announcement of their next examination. This allows firms more time to evaluate FINRA’s examination report and execute changes to address any findings.
  • Examination Recommendations will no longer be included in Examination Reports. Examiners will convey observations verbally with member firms. Observations, like findings and effective firm controls, represent information shared with Risk Monitoring for the purpose of having a more holistic understanding of a firm.
  • The risk assessment process for evaluating registered representatives has been enhanced to determine who will be monitored or examined in the coming year. As a result of this assessment, double the number of registered representatives were put in scope for 2019.
  • The existing three examination programs are being consolidated to eliminate duplication in examinations.

Further information on FINRA’s Examination Program Improvements can be found on FINRA’s website.

 

 

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