The Financial Industry Regulatory Authority is sweeping broker-dealers for information on conflicts of interest they have related to their compensation practices.
The self-regulator wants BDs to answer 19 questions in writing by Sept. 18. The scope of FINRA’s review is limited to a firm’s retail accounts, and will cover activity between August 2014 through July.
As FINRA stated in its Annual Priorities Letter, “conflicts of interest represent a recurring challenge that contribute to compliance and supervisory breakdowns which can lead to firms and registered representatives, at times, compromising the quality of service they provide to clients.”
While FINRA states that it has “observed instances of positive change since we issued the Report on Conflicts of Interest in October 2013,” the intent of the current review is “to continue our assessment of the efforts employed by firms to identify, mitigate and manage conflicts of interest, specifically with respect to compensation practices.”
FINRA wants to know how compensation policies for registered reps and supervisors are reviewed and approved and what role the board has, for both individual packages and the firm as a whole. It also asks about how firms identify compensation-related conflicts of interest and the controls used to manage those conflicts (e.g., neutral grid, fee-capping, compensation penalties). It asks firms to describe how pay policies balance short-term incentives for brokers with clients’ long-term interests.