This February, FINRA released the 2021 Report on its Examination and Risk Monitoring Program. The Report is designed to inform member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations. The Report combines and replaces the two previously published annual reports: Examination Findings and Observations and the Risk Monitoring and Examination Program Priorities Letter. The Report addresses key regulatory topics in four categories: (1) Firm Operations; (2) Communications and Sales Practices; (3) Market Integrity; and (4) Financial Management.

There are six main areas of focus that your firm should consider as you conduct annual reviews of written supervisory procedures and business activities: 

  • Regulation Best Interest (Reg BI) and Form CRS
  • Consolidated Audit Trail (CAT)
  • Cybersecurity
  • Communications with the Public
  • Best Execution
  • Variable Annuities

While FINRA’s discussion on each of these topics is essential to review, your team should read first the Appendix “Using FINRA Reports in Your Firm’s Compliance Program.” This new Appendix is designed to help firms use the Report in developing and improving their compliance programs. Based on feedback from member firms, the Appendix outlines how firms have used similar FINRA reports to strengthen their compliance programs. Using these “best practices” as a resource, consider adopting those that align with your business model. The Appendix is a useful guide for implementing change in your firm’s compliance program. We’ve summarized the key takeaways:

  • Conduct a comprehensive review of the findings, observations, and practices, focusing on those areas applicable to your business.
  • Incorporate the Report’s highlighted topics into your overall risk assessment processes and compliance program review.
  • Perform a gap analysis to evaluate how your compliance program and written supervisory procedures address the questions raised in the Report to help prevent similar findings.
  • Create project teams and workflows to facilitate compliance program enhancements.
  • Keep your compliance teams informed by circulating relevant publications.
  • Ensure your leaders are engaged by presenting your action plans to address questions and findings.
  • Leverage FINRA’s reports (findings, observations, and effective practices) as a means of guidance and training for your staff.

Your firm needs to be proactive in identifying and mitigating observed deficiencies in your compliance program. We maintain that the time between examinations is the ideal window for improving your risk management and compliance processes. In addition to using the 2021 Report on FINRA’s Examination and Risk Monitoring Program to enhance your compliance efforts, consider leveraging compliance technology tools to help your team effectively and proactively run your compliance program. The more prepared your firm is for a member firm examination, the more successful the examination.

FINRA Audit Guide