FINRA Focuses on Compliance Culture in 2016 Exam Priorities Letter
FINRA has issued its 2016 Regulatory and Examinations Priorities Letter, which focuses heavily on the importance of compliance culture. FINRA warns the industry that in 2016 it will “assess five indicators of firm’s compliance and supervision culture”: (i) whether a firm values control functions; (ii) if the firm tolerates compliance breaches; (iii) the extent to which supervisors are “effective role models,” (iv) how the organization “proactively seeks to identify risk and compliance events,” and (v) whether the firm identifies and removes non-compliant sub-cultures. The letter also indicates that FINRA will assess the resources devoted to compliance i.e. is the compliance function “equipped with the necessary resources to help firms navigate a complex and changing regulatory and market environment.” The Exam Priorities Letter also includes a long list of other topics that FINRA will prioritize this year including conflicts of interest, technology, sales practices, outside business activities, and ETFs.
OUR TAKE: Firms will not satisfy FINRA simply by appointing a Chief Compliance Officer and drafting compliance policies and procedures. FINRA will assess whether firms adopt a compliance culture throughout the management organization, including a commitment to properly resourcing the compliance function. Firms that do not spend at least 5% of revenue on compliance infrastructure and/or allow non-compliant “cowboy” sub-cultures need to re-assess their business practices if they hope to survive.