Firm Wrongly Relied on Inexperienced Compliance Associate
A broker-dealer was censured and fined for delegating certain regulatory obligations to an inexperienced compliance associate. The firm filed forms with FINRA that certified due diligence about OTC issuers whose quotations it published. The firm’s policies and procedures required the trader to conduct the necessary due diligence and a firm principal to certify the information. In practice, an inexperienced compliance associate was tasked with obtaining the information and filing the Form 211s with FINRA by inserting the electronic signature of a principal.
This is an example of what we call compliance alchemy i.e. the appearance of compliance without actually complying. The firm had the correct procedures and filed the right forms. However, there was no substance behind the due diligence or the certifications. The regulators have become wise to firms that simply check the box without actually doing the underlying compliance work.