The Blog Of The Securities Industry Professional Association

Caveat Emptor

Dangerous Move by FINRA

FINRA has done a relatively good job of providing members with access and guidance to the complex world or regulations we cope with.  From guidance on Cyber, Crypto and Reporting, they have provided more guidance than at any time in the last fifteen years.  In the 1990’s if you had a question you could just call your district examiner and ask them for help.  I once asked an examiner for assistance on how to handle a broker who was writing checks to his client to reimburse her for losses she suffered.  The poor guy felt terrible about his performance and the woman was an old friend of his and his intent was good, but sloppy.  My examiner walked me through steps to take and all was well at the end of the day.  I would strongly urge any member firms not to do that today or you will probably get an audit and an OTR at the least. 

In the early 2000’s, I heard many members complain that when asking about new rules, regulations or how to fix their manual , many were given a cold shoulder.  I must admit there is a wealth of important and meaningful information for members that was never available before.  One dangerous addition is the Compliance Vendor List.  It borders on dangerous to both FINRA and Members.   While I applaud the intent, sometimes bad and dangerous things can happen.   FINRA does explicitly state that this is in no way an endorsement of their services, but the fact that they are on the FINRA web site lends credibility to them no matter what they disclose.  There are many excellent compliance vendors out there that we recommend and work with, but despite what people think, there are some bad ones out there that can put your firm at risk.  The problem is anyone can put a shingle on their door and open a web page with little to know experience and suddenly they have legitimacy.  I have literally been told horror stories by member firms who relied on their compliance consultant and ended up getting their head handed to them on a platter.  I know of some consultants (or so they say) who put firms out of business with their manuals, filings and lack of action.  Technically, if the firm got the name off of the FINRA website, they could insist they were trying to be compliant and relying on FINRA’s list.  It’s harder to show a lack of compliance if the member firm was relying on FINRA’s list.  

We want to reiterate that we work with dozens of excellent compliance consultants and recommend them to our members all the time, but buyers beware.  Make sure you do your due diligence and ask for experience, not of the firm or the consultant, but ask them for their previous clients and talk to them.  Call other members you know or call us for our knowledge of working with them.  A reputation is earned and if you start hearing bad things, find another.  We believe you should be very careful utilizing a FINRA list and in our opinion they are making a mistake.

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October 8th, 2019


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