Download - FINRA Examination Program
FINRA Examination Program
October 9, 2012
1:00-2:30 Eastern Time (ET)
2 FINRA Examination Program Webinar Copyright 2012 FINRA
Agenda
1. Risk Based Exams
2. Preparing for Exams
3. Common Exam Findings
4. Industry Tools and Practices
3 FINRA Examination Program Webinar Copyright 2012 FINRA
Program Notes
Asking questions – Click the word balloon icon. It appears above the
video screen in the Windows Media console, and in the bottom right of
the Silverlight console.
PowerPoint or resources – Click on the paperclip resource link
above the video window.
Technical difficulties – Call Technical Support at (212) 858-4119.
Choose Option 2 for Technical Assistance, then choose 2 for FINRA
Webinars.
Use of the practices and information from this program does not
guarantee compliance with regulatory requirements or create a safe
harbor from regulatory responsibilities.
Risk Based Exams
5 FINRA Examination Program Webinar Copyright 2012 FINRA
Risk Based Exams
Overview
Criteria Used to Determine Risk
Exam Prioritization
Future Exam Program Changes
6 FINRA Examination Program Webinar Copyright 2012 FINRA
Risk Analysis
Delivering risk intelligence to Regulatory Operations
The strategy of the Risk Office rests on our ability to prioritize potential exposures, align appropriate
risk measurement tools and methods, and rollout risk intelligence in relatively short order. The time
from model inception to delivery is typically measured in days or weeks, which is significantly shorter
than the typical regulatory or business intelligence lifecycle. As such we rely on an ability to:
Process, aggregate, and analyze large quantities of data quickly;
Bind that data to other, disparate data sets to transform raw data into information;
Rapidly process that information into value added analytics; and,
Render that analysis in a form that is both digestible and filters out the noise.
Applying industry
leading risk
measurement tools,
methods and
approaches to the
regulatory challenge –
and impacting our
regulatory programs
Built an integrated
risk architecture to
deliver robust
analytics
7 FINRA Examination Program Webinar Copyright 2012 FINRA
Delivering Value to Regulatory Operations
How we’re influencing Regulatory Operations
Business Model Segmentation and Controls Assessment Qualitative risk analytics that facilitates the segmentation of firms.
Helps to identify the risks associated with firms and attendant controls.
Transactional and Portfolio Level Risks Analytics Assesses the transactions firms engage in looking at individual buys
and sells at the CUSIP instrument level.
Leverages modern portfolio analytics and industry leading risk drivers to identify accounts (customer or house) with outsized risk positions.
Risk Based Planning and Periodic Risk Assessments Prioritizes firms for examination (Sales Practice, Market Regulation
TMMS, and Municipal Securities) based on the nature and materiality of their business, the risks they represent, and alignment to our overall priorities.
Agility to focus regulatory programs on priorities in a changing environment and provide the most up to date information available at a branch, firm or segment level.
8 FINRA Examination Program Webinar Copyright 2012 FINRA
Risk Control Assessment
Gaining a better understanding of business models, attendant risks and underlying controls
The Risk Control Assessment (RCA) is a survey that was distributed across the membership with an
intent to increase our understanding of the business model, attendant risks and underlying controls
associated with each member firm. The purpose of this information is to gain greater transparency
into:
• The products and services they sell;
• The clients and counterparties they deal with; and
• The markets they operate in.
• Input from small to large member firms
• Included representation from the Sales and Trading, Risk, Finance, Operations and Compliance; and,
• Mid-stream adjustments to the RCA were made based on feedback from early responders and the SFAB.
Exam Focus and Preparation Tips
10 FINRA Examination Program Webinar Copyright 2012 FINRA
Exam Focus and Preparation Tips
Branch Exams
Tips
Exam Close
Common Exam Findings
12 FINRA Examination Program Webinar Copyright 2012 FINRA
Common Exam Findings – Summary
Inadequate Supervisory Systems / Procedures
AML Compliance Issues
Suitability of Recommendations
Failure to Evidence Supervisory Review of Recommendations
Failure to Conduct Adequate Branch Inspections
Selling Away / Outside Business Activities
Advertising and Sales Literature Concerns
Undisclosed Email Accounts - Supervision of Electronic
Communications
Industry Tools and Practices
14 FINRA Examination Program Webinar Copyright 2012 FINRA
Industry Tools and Practices
Outside Business Activities (OBAs)
Suitability
15 FINRA Examination Program Webinar Copyright 2012 FINRA
Industry Tools and Practices – OBAs
Common Exam Findings
Industry Tips
Resources
2012 Free FINRA Annual Conference On-demand Session
16 FINRA Examination Program Webinar Copyright 2012 FINRA
Industry Tools and Practices – Suitability
Preliminary Findings
Limited results so far – early in process.
Generally, examiners find compliance.
Some firms in various stages of implementation.
Firms have incorporated KYC requirements into their information
gathering tools.
Several instances where firms did not implement procedures to
comply with the rules exemptive provisions.
Small number of firms – no effort whatsoever to comply.
17 FINRA Examination Program Webinar Copyright 2012 FINRA
Industry Tools and Practices – Suitability
Industry Tips
Resources
Access to Free Online Learning:
– Suitability and Know Your Customer Webinar;
– 2012 FINRA Annual Conference On-demand Session; and
– 3 Part Suitability Podcast Series
Regulatory Notice 12-25
Send feedback to: [email protected]