April 20, 2024
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Key Steps to Ensure FINRA Compliance

For registered investment advisors (RIAs), compliance with FINRA regulations is not merely a suggestion. It’s a fundamental requirement that underpins the trust investors place in financial markets. You are entrusted with managing the financial well-being of your clients and to do so effectively and legally, you must navigate a complex web of regulations.

Compliance with FINRA guidelines is a cornerstone of this regulatory framework. In this guide, we will walk you through the essential steps you need to take to ensure FINRA compliance, helping you bolster your credibility, minimize risks, and thrive in the competitive world of financial advisory services.

What is FINRA?

The Financial Industry Regulatory Authority, commonly known as FINRA, is a self-regulatory organization (SRO) that plays a crucial role in overseeing and regulating the securities industry in the United States.

FINRA was established in 2007 by consolidating two pre-existing regulatory bodies: the National Association of Securities Dealers (NASD) and the New York Stock Exchange’s regulatory division.

It has now become a central figure in maintaining the integrity, transparency, and fairness of the financial markets. Its mission revolves around three core principles: protecting investors, ensuring market integrity, and fostering efficient and competitive capital markets. To fulfill these objectives, FINRA carries out a wide range of regulatory functions. It:

  • oversees nearly all securities firms and professionals in the United States, including brokerage firms, investment advisors, and securities representatives. Through the establishment and enforcement of rules and regulations, FINRA aims to ensure that these entities conduct their business activities in a compliant and ethical manner.

  • operates as a watchdog, actively monitoring securities markets to detect and address potential misconduct, fraud, or market manipulation. It can investigate and take disciplinary actions against firms or individuals who violate its rules. This enforcement role is essential in maintaining market integrity and investor protection.

6 key steps you can take to ensure FINRA compliance

Brokers or firms that don’t comply with FINRA regulations get fined and may even get suspended. In 2021, FINRA collected over $91 million in fines for violation of disciplinary regulations. To avoid hefty penalties, you must comply with FINRA regulations and here are the key steps you should take:

1)   Continuous regulatory education and training

As an RIA, it’s crucial to stay updated on FINRA regulations and ensure your team does, too. You can organize regular training sessions, webinars, and workshops focused on compliance topics. Also consider attending seminars conducted by FINRA or other industry experts to deepen your knowledge. You want to encourage a culture of compliance within your firm by making ongoing education a fundamental part of your team’s professional growth.

2)   Comprehensive compliance policies and procedures

Another step you can take to comply with FINRA is to develop comprehensive compliance policies and procedures tailored to your firm’s unique operations. These policies should encompass all aspects of your business, including client onboarding, risk assessment, trading practices, advertising, and handling conflicts of interest.

You also want to make sure your policies are well-documented, easily accessible to all staff, and subject to regular review and updates to align with evolving regulations firm practices.

3)   Regular internal audits and reviews

Conducting regular internal audits and compliance reviews is another crucial aspect of staying compliant. These audits should cover a wide range of areas, such as trade compliance, advertising, cybersecurity, and employee conduct.

You can appoint a dedicated compliance officer within your firm or enlist an independent compliance consultant to perform these audits objectively. Their assessments can provide valuable insights and recommendations for improvements.

4)   Robust cybersecurity measures

Safeguarding client data is of paramount importance when it comes to FINRA compliance. So, implement a multi-layered cybersecurity strategy that includes robust firewalls, intrusion detection systems, and encryption protocols.

Also, regularly conduct vulnerability assessments and penetration testing to identify and address any security weaknesses. Train your team on best practices for cybersecurity and establish a clear incident response plan to effectively manage potential data breaches.

5)   A dedicated compliance officer or RIA lawyer

Appoint a dedicated compliance officer or an RIA lawyer from an experienced firm like My RIA Lawyer. Empower this person to oversee and enforce compliance policies. Also regularly consult with your compliance officer to address any concerns or questions related to compliance and to stay informed about potential issues.

6)   Client communication and transparency

Last but not the least, you want to maintain open and transparent communication with your clients. Make sure to clearly disclose fees, conflicts of interest, and any material information that might impact investment decisions.

Also provide clients with regular portfolio reports and investment performance updates. Encourage them to reach out to you with questions or concerns and promptly address any complaints or disputes in accordance with FINRA’s dispute resolution process.

Final words

Navigating the intricate landscape of FINRA compliance is not just a regulatory requirement — it’s an essential element in your journey as a successful RIA. Also remember, compliance isn’t a one-time task but an ongoing commitment. It’s about continually educating yourself and your team, fine-tuning your policies, conducting meticulous audits, and safeguarding client data.

And if you’re seeking a trusted partner in your quest for FINRA compliance, consider My RIA Lawyer in Atlanta. Their legal team can help simplify the intricacies of FINRA compliance. With their deep understanding of the regulatory framework and extensive experience in the financial industry, they can become an invaluable partner on the path to compliance.

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