With the rise in new regulations, small firms generally experience some of the greatest challenges evolving their business to meet these new demands. Critical focus areas constantly expand related to cybersecurity, senior investor protection, supervisory controls, succession planning, and human capital. With this in mind, small firms need to ensure that they have a solid foundation in place for their compliance program. But why is it important for small firms especially to perform occasional assessments of their compliance efforts?
1. It is a regulatory requirement.
Whether you look at the FINRA Rule 3110 or SEC Rule 206(4)-7, your firm’s ability to clearly articulate your compliance program is non-negotiable. This also includes the ability to document the adequacy and effectiveness, as well as risk mitigation, of the overall program.
2. Small firms do not have the human capital for inefficiency.
Small firms are generally overworked and understaffed. Additionally, small firms may lack robust surveillance systems. These systems are crucial to establish accountability and identify red flags where they need it most. All firms, no matter their size, should focus on having a solid design and assessment of the firm’s compliance program. This allows them to prioritize and streamline their resources to shift and evolve with the changing regulatory landscape.
3. Fines for small firms disproportionately affect the overall business.
Regulatory enforcement penalties can be severe for failure to implement programs designed to mitigate risk and protect investors. These penalties can even have the potential to put firms out of business. Enforcement cases paint a clear picture that in many cases, size is only one factor in the amount of the monetary fine. Some firms may attempt to argue that they didn’t have time and/or resources to build a compliance program. This argument will be short-lived.
Failure to have a well-designed compliance program in place may cost you both time and money in potential fines and enforcement actions. If you would like to learn more about how we can assist your Firm in building a solid compliance program, please contact our office.