FINRA Questioning Brokerage Firm “Culture”

FINRA has made brokerage firm “culture” one of its top priorities for 2016. FINRA refers to “culture” as how management sets the bar for the firm and how culture effects their brokers interaction with clients and their business. According to FINRA, firm culture has a profound influence on how a broker-dealer conducts its business, including how it manages conflicts of interest. This is a new area FINRA is trying to investigate.

One way FINRA is looking into culture is to see if there are any forms of payments and commissions that could affect an employees behavior. FINRA is reaching out to the industry by seeing where firms stand versus enforcing strict “culture” rules on how a brokerage firm must act. Recently, FINRA sent more than a dozen firms 8 questions regarding their firms “culture.” The questions were the following:

” 1. A summary of the key policies and processes by which the firm establishes cultural values. In the summary, include whether this is a board-level function at your broker-dealer or at the corporate parent of the firm. If it is a board-level function, describe the board’s involvement. Also, provide a description of any steps you have initiated or completed in the past 24 months to promote, strengthen or change your firm’s culture.

2. A description of the processes employed by executive management, business unit leaders and control functions in establishing, communicating and implementing your firm’s cultural values. Include a description of how executive management communicates, promotes and establishes a “tone from the top” as it relates to cultural values (to the extent not covered by the previous question). Include a description of the firm’s approach to ensure that its cultural values are adopted and applied by middle management.

3. A description of how your firm assesses and measures the impact of cultural values (to the extent assessments and measures exist) and whether they have made a difference at your firm in achieving desired behaviors. Provide a summary of the policy statements, procedures, mission statements or other related documents that reflect your firm’s assessments and measures.

4. A summary of the processes your firm uses to identify policy breaches, including the types of reports or other documents your firm relies on, in determining whether a breach of its cultural values has occurred. Please focus your summary on those activities your firm considers to be directly related to reinforcing its culture.

5. A description of how your firm addresses cultural value policy or process breaches once discovered. What efforts are used to promptly address these policy or process breaches? What is the escalation process to surface and resolve such breaches?

6. A description of your firm’s policies and processes, if any, to identify and address subcultures within the firm that may depart from or undermine the cultural values articulated by your board and senior management?.

7. A description of your firm’s compensation practices and how they reinforce your firm’s cultural values.

8. A description of the cultural value criteria used to determine promotions, compensation or other rewards. Describe opportunities for promotion to the managing director or equivalent level available to personnel of your compliance, legal, risk and internal audit functions.”

FINRA is requesting the answers to the 8 questions by March 21st, 2016. Thereafter, FINRA will review the answers given from the firms to see how they responded. Then they will interview high ranking executives and test the answers to see if they are legitimate practices.

The Blum Law Group specializes in helping people who have been victimized by stock brokers or investment firms. If you believe you have suffered financial losses as a result of the actions of an investment advisor, brokerage firm, or individual please give us a call at 1-877-STOCK-LAW for a free legal consultation.

Posted in:
Updated:

Comments are closed.