Understanding FINRA Compliance Requirements

The Financial Industry Regulatory Authority (FINRA) is an independent, non-governmental entity that writes and enforces rules that govern registered brokers and broker-dealer companies in the United States. FINRA’s mission is “to safeguard the investing public against fraud and bad practices.” FINRA compliance ensures safe trading of equities, securities, corporate bonds, and other investment options. Consequently, the authority has the power to ban or fine brokers and brokerage firms that violate its compliance rules. But before we delve deeper, what does FINRA compliance entail and how is it important to your business?

What is FINRA Compliance?

FINRA regulates over 4,200 brokerage firms (amounting to about 63,000 brokers) on the market and oversees the securities and stock market industry to retain investor confidence and eliminate fraud. It works by ensuring that registered brokers or brokerage firms adhere to the FINRA and SEC rules. FINRA compliance helps manage and minimize risks and keep the market ordered, structured, and uniformed.

Even though FINRA is nongovernmental, it is overseen by the Securities and Exchange Commission (SEC) and works to enforce both SEC and FINRA rules and regulations. FINRA regulates the financial market by:

  • Examining firms for compliance with SEC and FINRA rules.
  • Fostering transparency in the marketplace
  • Educating investors
  • Enforcing high ethical standards
  • Implementing investor safeguards
  • Establishing and enforcing FINRA compliance, FINRA SEC rules, and regulations.

FINRA compliant financial brokers or brokerage firms must be licensed and registered. They must also pass their qualification exams and adequately meet their continuing education requirements. To keep abreast of how brokers operate, FINRA has several financial examiners in the field every day to closely examine brokers’ day-to-day operations.

FINRA also conducts regulatory examinations and inquiries based on flagged suspicious activities and complaints received. It checks all advertisements (approximately 100,000 every year) on sales brochures, broker websites, and other communication channels to ensure that financial information is presented in a fair, transparent manner.

Staying Compliant with FINRA

FINRA provides critical regulatory oversight that keeps the U.S. markets fair and safe. However, failure to meet the FINRA compliance requirements can attract heavy fines or even a ban. Even compliant organizations sometimes find FINRA regulatory examinations stressful.  Working closely with FINRA compliance consultants is a great way to evaluate your level of compliance and stay on the right side of FINRA. Overall, FINRA compliance is essential for keeping your company and clients safe.

Going Paperless

 

Adopting a paperless document management system is one of the easiest ways to stay compliant with FINRA. Going paperless improves efficiency and security, making FINRA compliance hassle-free. Paperless filing systems help to protect confidentiality and privacy, minimize risks and liability, and maintain compliance. Additionally, you can use document encryption to add an extra layer of security. A large part of FINRA compliance examinations involves evaluating your firm’s books and records to ensure they are current and accurate. When every file is available electronically, it’s easy and quick to audit various aspects of your operation. Maintaining paperless records helps you to be upfront with FINRA compliance and reduces the headache that often accompanies an audit process. Now, let us look at some specific FINRA compliance requirements.

FINRA Email Compliance

FINRA rules for email require all companies to maintain a complete and easily accessible archive. While there are more than 1,000 different regulations on emails, every organization is typically required to store their emails in redundant, tamperproof, and easily accessible archives for 3 to 7 years. Failure to comply with FINRA email rules can attract heavy fines and penalties. FINRA primarily regulates financial services and subjects all email correspondences with the public to this provision.  

FINRA WORM Compliance

WORM compliance requires organizations to keep records in a format that cannot be tampered with by any possible means. The approach prevents anyone, including archive administrators, from altering any records before the expiry date or event. In the financial sector where highly sensitive data is collected and stored, WORM compliance FINRA is critical. SEC and FINRA, under Rule 17a-4, require organizations to preserve all electronic records exclusively in a non-erasable and non-rewriteable format. Records must be stored and indexed on indelible media for six years and allow for immediate accessibility within the first two years.

FINRA Website Compliance

Organizations are increasingly designing more personalized and interactive websites, which makes online archiving technically challenging. FINRA and SEC regulations demand that all online content representing business communication must be retained and supervised. So, you need an archive with integrity. Taking screenshots or using apps to download social media content won’t meet your FINRA website compliance.  

FINRA’s Regulatory Notice 17-18 requires all online and social media content to be subjected to the regular rules requiring disclosures, supervision, and monitoring of communication channels, and guarantees of truthfulness and fairness.

FINRA Cloud Compliance

Everything is seemingly moving to the cloud these days. But how can financial services providers safely store sensitive, personal information in the cloud? FINRA cloud compliance has a set of rules and regulations that govern how information is stored and accessed by service providers and their clients.

The Securities and Exchange Act of 1934 (amended) incorporates Rules 17a-3 and 17a-4 that give guidelines on how to backup and archive electronic records. FINRA adopted the SEA Rules and added extra provisions for Third-Party Providers. Basically, Financial Services Provider cannot delegate compliance obligations to third party providers like cloud services.

FINRA Compliance Certification

For a broker or brokerage firm to be FINRA compliant, it must earn the FINRA compliance certification – Certified Compliance Specialist (CCOS). The issuing organization is the International Association of Financial Management (INTERFIMA), and the requirements include:

  •  Three years experience in the financial services sector OR
  • An undergraduate or graduate degree in Business, Finance, or Economics, OR
  • An undergraduate or graduate degree in Law from an accredited school, college, or university.

The education requirements include five modules of related subject matter, plus a minimum of 32 to 40 in-class hours.

You Don’t Have to Do It Alone!

Establishing FINRA compliance can be a challenge. You need processes and testing solutions that meet regulatory requirements and also keep your costs in check and operations running efficiently.  

If you’re struggling to automate your FINRA compliance, work with a reputable experts who have a track record serving hedge fund managers, private equity firms, mutual funds companies, and brokerages to deploy IT systems that simplify FINRA reporting.

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