FINRA Fails to Furnish Complete and Accurate Records

This headline flashed across my computer screen a few days ago in an e-mail.

              SEC orders FINRA to improve compliance policies and procedures

The SEC order arises from a whistleblower complaint.  Prior to submitting records to the SEC, the regional director of the FINRA Kansas City office had minutes of the district office staff meetings altered.

To FINRA’s credit based upon the whistleblowers complaint, an internal investigation was initiated and the SEC alerted.  But the order states that this was not the first time that FINRA or its predecessor the NASD had provided altered or misleading documents to the SEC.  Apparently FINRA has tried to improve its procedures but obviously this has not been effective.  This has all resulted in a finding that FINRA violated section 17 (a) (1) of the Exchange Act and specifically rule 17 a-1.  FINRA has agreed to settle with the SEC and has undertaken to among other things engage an independent compliance consultant that will perform the following tasks:

  • Conduct a one-time comprehensive review of FINRA’s policies and procedures and training relating to document integrity.
  • Assess whether the policies and procedures and training are reasonably designed and implemented to ensure the integrity of documents provided to the SEC.
  • Make recommendations for the enhancement of FINRA’s policies and procedures and training as may be necessary in light of the consultant’s review and assessment.


These undertakings will come at a cost so the question is who ends up paying the bill?  Surely this will stir up the broker-dealer community.  The very entity that oversees them has violated one of the essential requirements that all broker-dealers are subject to – accurate record-keeping. The members of FINRA will ultimately be required to pay for these undertakings by the regulatory fees they pay to FINRA.

This also comes on the heels of reports that the SEC inspector general is looking very closely at actions of the SEC staff.

The main question is why cannot FINRA develop policies and procedures that ensure accurate and non-misleading records? How can they march into a broker-dealer and make any kind of assessment of its compliance program?

The answer is that the development of policies and procedures is an art and not a science. One size does not fit all. Hopefully the work of the independent compliance consultant will not only solve this problem but also inform the ongoing work of FINRA as it oversees its members.



©2011 by Sharon M. Davison, you may share this article if you attribute it to the author.

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