FINRA Exams Are Changing, Execs Say

“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, New York. Photo: FINRA