You get that call, and your heart drops. You knew that a regulatory exam was on the horizon, but you have put off thinking about it. Now, you are face-to-face with an upcoming FINRA examination, and the panic has set in.
The best way to avoid the panic is to start preparing now and learn what to expect during a FINRA examination. Below are a few key tips to help you stay above the fray during your next exam. FINRA also provided a great podcast earlier in the year to overview their vision of regulatory examinations called What to Expect: The 2020 Exam and Risk Monitoring Program.
Initial Meeting with Examiners
A FINRA examination should be a mix of document requests, reviews, and interviews. The examiners should start with a meeting to better understand your business, products, and risks. This is the time for you to make sure you have a solid grasp on your business and how your compliance program fits into it.
Articulate the Design of Programs
A good story is worth its weight in gold. Yes, there will be some documents that will part of their default request list. In other cases, your response to their questions will also dictate what additional areas will be requested for document review. Be able to speak about the design of the major areas of your program clearly and concisely. For example, this might include your programs for communications, AML, or due diligence. FINRA wants to feel confident that you have a program in place and can articulate the design.
Production of Documents
Know where to find your key books and records. Document production is a large part of the audit. Some documents may take longer to produce in a FINRA requested format (i.e. trade blotters with custom fields that you may have to request). For other documents, FINRA will expect them to be readily available for inspection.
Don’t Make Matters Worse
Finally, never backdate or create documents. Many firms have learned this painful and expensive lesson. The pressure to be perfect, as well as the fear that you are not, lead many well-meaning firms down a path that can ruin the very bedrock of trust established by the firm if discovered. If you don’t have something that FINRA is requesting, explore your options which may include getting advice from counsel, consultants, or senior management.
If you would like to learn more about how we can assist your firm in building a solid compliance program and preparing for your next FINRA examination, please contact our office.
