FINRA Conducting Culture Sweep
FINRA has published a “Targeted Exam Letter” as part of a sweep to review whether firms have adopted and implemented an ethical firm culture that prioritizes client interests. FINRA will meet with executives, compliance, and legal staff to determine “how firms establish, communicate, and implement cultural values.” FINRA requests a summary of key policies and processes for establishing culture, a description of how a firm assesses culture impact, how breaches are addressed, compensation practices, and promotion opportunities for legal and compliance personnel.
OUR TAKE: One of the most significant proxies for firm culture or “tone at the top” is the level of spending on compliance infrastructure. We recommend that firms spend no less than 5% of revenues on compliance resources including personnel, third party resources, and assisting technologies. We also recommend adopting specific value statements and immediately disciplining violations.