More than a year after revamping its suitability rule, the Financial Industry Regulatory Authority has issued a study guide of sorts for broker-dealers (BDs) to help them prep for suitability exams.
Notice to Members 13-31 discusses issues that have cropped up during exams in the last year, with some of the infractions serious enough to be referred to enforcement. It highlights exam areas, common findings and effective practices when complying with the revised suitability rule, which became effective on July 9, 2012.
The notice provided eight questions every BD should be able to answer. Josh Horn, a partner in the Securities Industry Practice at Fox Rothschild in Philadelphia, summed those questions up in a recent blog post.
“If you cannot answer them in some fashion, you likely do not have adequate protocols in place,” Horn warns. “Take the time to revisit your policies and procedures before FINRA does it for you.”
The suitability rule requires a firm or associated person to “have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.”
Horn told ThinkAdvisor that to get up to speed with the new rule’s requirements over the past year, he suspects “that there are firms that had to undertake a wholesale review of their policies and procedures to get them current to the new suitability rule.”