Dave Paulukaitis, a Managing Director with Mainstay Capital Markets Consultants, Inc. in Atlanta attended last week’s Atlanta BD/IA Continuity Group meeting hosted by KPMG. I couldn’t attend, but Dave agreed to let me share his notes with my readers:
At the meeting, Dan Stefek, the District Director for the Atlanta District Office of FINRA, spoke about current examination procedures and focus areas. He noted that FINRA maintains its historic 1, 2 and 4 year exam cycles but now they conduct risk analyses twice a year on every firm to figure out whether that cycle should be moved up. He noted that FINOP and sales practice analyses are done independently, which means, for example, that a FINOP exam might be pushed up and the sales practice exam kept on the normal cycle. He also explained that FINRA is normally giving 30 days advance notice on exams, but in some instances, they give 60 days advance notice. When giving a 60-day notice, it’s usually because they are collecting information in order to conduct extra branch office exams, Stefek explained.
Stefek also spoke about exam focus areas and noted that, among other things, the primary focus areas on exams are: WSPs, supervisory systems and supervisory controls; AML and the adequacy of independent testing; sales to seniors; customer “wealth events” (i.e., retirements, inheritances, etc.) and how firms handle the investment of new found wealth; and, sales of variable annuities. Additionally, Stefek stated that the regulators were concerned about firms that hire brokers from “problem firms.” When questioned about how broker-dealers could identify such “problem firms,” he was unable to provide any clear guidance. Finally, he noted that while FINRA had not historically focused on a broker-dealer’s supervision of the investment activities of independent representatives who are also registered as investment advisor representatives, they are going to be reviewing such supervision now (See NTM 94-44).
Thanks to Dave for filling me in on what I missed, and letting me share this information with readers of BDLawBlog.com.