Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor
FINRA sign

Regulation and Compliance > Federal Regulation > FINRA

FINRA Exams Are Changing, Execs Say

By Melanie Waddell

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • FINRA is increasing the number of on-site exams it conducts, but examiners will spend less time on-site.
  • The organization is also using a new method to determine how often firms will get an exam.
  • Off-channel communications will receive more of an emphasis this year.

While the Financial Industry Regulatory Authority is increasing the number of on-site exams it conducts, examiners will spend less time on-site, according to FINRA officials. FINRA is also using a new method to determine which firms get on-site visits.

Michael Solomon, head of FINRA’s national exam program, said on a recent FINRA podcast that on-site exams “ground to a halt” in March 2020.

However, as COVID began to recede last year, examiners “began to go on-site more frequently on our exams, and we’re ramping that up pretty substantially this year,” Solomon said.

Examiners are “taking a different tack, though,” Solomon said.

Before COVID, “essentially every exam had an on-site portion, some longer than others,” Solomon explained. “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.”

Said Solomon: “I think the days of us camping out at a firm for a week or two weeks, and then returning for a long period are behind us given the amount and the ability to obtain things remotely.”

Back-to-Back Exams

Solomon reiterated that FINRA has consistently moved to a more risk-based exam program.

FINRA’s Risk Monitoring counterparts that help determine exams “do a real-time assessment of all of our 3,400 firms to determine whether they’re going to get an exam each year, whether they’ll have one back to back or whether they’ll be more spread out based on the risk of that firm and how they assess that firm,” Solomon explained.

“We’re committed to examining every firm at least every four years,” Solomon said. “A new firm we have to examine within the first 12 months of their membership. 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.”

Likewise, Solomon continued, “if they scale back their business, become smaller or [eliminate] certain business lines and their risk is assessed to be reduced, they may have an exam less frequently and may change from back-to-back [exams] to a less frequent time period.”

Off-Channel Communications an Exam Focus

Joseph Sheirer, vice president of FINRA’s exam program, added on the podcast that FINRA tailors each exam to the individual circumstances of the firm.

“We do try to take a look at what’s going on in the industry, either things that we’ve seen from a trends perspective, things that are evolving, working with other groups within Member Supervision and FINRA more broadly to identify evolving issues,” Sheirer said.

A lot of that, Sheirer continued, “comes from signals that are in the annual Exam and Risk Monitoring Report and then work that we’re doing between Exam and Risk Monitoring and other teams to identify things that are cropping up.”

For instance, “off-channel communications is an area that has come to the forefront for a lot of us, both on the regulatory side and the business side, with recent cases” from the Securities and Exchange Commission and FINRA.

“So, that’s an area of focus that has always been part of our program, but we’re emphasizing more this year,” Sheirer said.

Sign outside a FINRA building in Rockville, Maryland. Photo: FINRA

Melanie Waddell

@Think_MelanieW

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.