Back in the early 2000’s, FINRA (then known as the NASD) came out with Notice to Members 06-23 (“Notice”). This Notice goes into detail about the responsibilities of the FINOP. Whether your FINOP is employed full-time in-house or is outsourced, the Notice applies. There are further considerations for the FINOP if the role is outsourced.

The Notice gives guidance on several specific areas:

  • On-Site Visits & Documentation
  • Access to Books & Records
  • Establishment of Procedures Regarding FINOP’s Duties
  • Ongoing Capabilities Assessment of FINOP

On-site Visits & Documentation

Before the world of Covid, the Notice stated that the FINOP needed to have on-site visits to the member firm each year, with some – if not all – being surprise visits. The visits should include a review of the firm’s contracts signed with anyone, whether registered representative, vendor, or affiliate, to name a few. Additionally, all Balance Sheet accounts should be studied for their impact on the firm’s aggregated indebtedness and net capital impact.

During and post Covid, the world of in-house visits for everyone has changed. Although no new guidance has been published regarding the in-house visits, it is safe to say that the FINOP should continue to do everything possible to stay informed and up to date on the firm’s activities. Regular Zoom meetings, telephone calls, and ongoing communication should be maintained and documented should the FINOP not be able to go in-house for visits.

Upon each meeting and/or visit to the firm, a written and signed report should be provided to management for their records.

Access to Books & Records

Upon registration of the FINOP, the firm needs to give the FINOP access to all Books & Records. This rule applies whether the FINOP is employed in-house or outsourced.

Establishment of Procedures Regarding FINOP’s Duties

When the FINOP is registered with the member firm, management and the FINOP need to have a thorough and detailed conversation and create procedures regarding the role of the FINOP as it applies to the firm. Along with the firm’s procedures for the FINOP, the FINOP must also stay knowledgeable regarding all laws and regulations as it relates to their role.

Ongoing Capabilities Assessment of FINOP

This task is especially important for the firm that engages with an outsourced FINOP. Management needs to make sure that their registered FINOP is fully engaged with them and not stretched too thin among multiple firms. If the FINOP is pulled in too many directions, this could lead to oversights in the financials, net capital, and aggregate indebtedness. The firm should also consider its own growth and expansion – if the firm is growing, there may be a time when hiring an in-house FINOP becomes the wise decision.

At Securities Compliance Management, we have taken these guidelines and built a program that is turnkey. Procedures have been created that allow the FINOP to provide not only excellent customer service, but also helps the firm meet all the necessary deadlines while providing added value for the firm. One way this is done is through an annual FINOP review.

Securities Compliance Management’s annual FINOP review guides the firm and the FINOP through a series of investigative inquiries to determine everything mentioned in this article. Upon completion, the firm and the FINOP both sign off on the documentation for record keeping purposes. This documentation has the ability to turn the course of an SEC or FINRA audit around should it become necessary.

Does your firm do an annual FINOP review? If not, it should. Do you know how to go about doing an annual FINOP review? If not, please contact Master Compliance and allow us the opportunity to partner with your FINOP on the process.