FINRA to Scrutinise Impact of Firm Culture on Compliance and Risk Management
12 Feb 2016

Wall Street’s self-regulator, the Financial Industry Regulatory Authority (FINRA), has announced this week that its 2016 examinations will include assessments of brokerage and financial advisory firms’ everyday habits in relation to regulation adherence.

Aspects of culture that will be assessed include the priority placed upon compliance at the firm, whether violations are tolerated, the example senior management sets, and whether subcultures operating against the firm’s compliance principles can be identified.

FINRA has also stated in its 2016 broker-examination priority letter that examinations will focus on anti-money laundering, cybersecurity and technology management.

The regulator’s increased scrutiny of culture complements its more stringent assessments of sales practices, with firms coming under fire for failing to manage conflicts of interest.

Another issue that has been highlighted by FINRA Chairman and Chief Executive Richard Ketchum is the danger of double standards for high-producing employees, who in previous years have received little more than a slap on the wrist for violations.

FINRA’s decision to increase the focus on culture may in part be due to the Financial Action Task Force’s recent moves to prioritise the assessment of the effectiveness of anti-money laundering regimes in the jurisdictions which it inspects. Commonly, this has caused regulators to undertake similar inspections of their licensees. But it will also inevitably draw contrasts with the UK Financial Conduct Authority’s controversial decision to scrap a review of culture within the finance industry at the beginning of this year.



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