The “Top 10 Regulatory Considerations” for the financial industry were shared at a recent event by Chip Jones and Susan Axelrod of the Financial Industry Regulatory Authority (FINRA), Mari Buechner, Coordinated Capital Securities, Alan Cohen, Goldman, Sachs & Co. and Daniel Kosowsky of Morgan Stanley Wealth Management. These issues include: creating a culture of compliance, a best interest standard, cybersecurity, hiring practices, anti-money laundering, senior investors, managing conflicts of interest, fixed income, the regulatory exam process and new product due diligence. A deeper dive on a few key issues follow:
FINRA’s perceptive: Axelrod said that senior investors have been an area of focus for FINRA, SEC and other regulators for years. “We are passionate about this, it’s core to our mission” emphasized Axelrod. To this end, FINRA and the Securities and Exchange Commission (SEC) recently conducted examinations that focused on how firms conduct business with seniors. This joint effort resulted in the National Senior Initiative report and webinar.
The good news is that firms have stepped up supervision over senior activities, are more carefully reviewing investment concentration within senior’s accounts for suitability and are training financial advisors to recognize signs of diminished capacity. As part of the continuing effort to protect this vulnerable segment of the investing public, a toll-free FINRA Securities Helpline for Seniors (844-57-HELPS or 844-574-3577) was launched to help seniors reach out to FINRA with questions and concerns. “Let’s just listen. Let’s hear what the issues are, let’s see how we can help some people before something bad happens” said Axelrod.
Firm best practices: “Our average client is well into their 50’s so this is part of our practice every day. It’s part of managing the business, not just compliance, but a firm-wide thing” said Kosowsky. Special content and contact information regarding seniors should be available at your firm. Roll out training for financial advisors that includes how to “bake in age” to make suitable recommendations. Financial advisors should also consider conducting meetings with the family to make sure everyone’s interests are aligned, he added.
Buechner observed that the industry has really stepped up creating awareness of how to detect things like diminished capacity and financial elder abuse. Establish protocols for when those situations are detected. This could include a wellness check, an escalation process, reaching out to your branch manager, defining your legal options and reporting requirements, even possibly limiting trading activity in accounts. As part of your processes, it’s key to have a current back-up contact, a “trusted person” that you can call before there is a problem, concluded Buechner.
FINRA’s perspective: Axelrod relayed that, regardless of the size of the firm, every executive management team was worried about cybersecurity as a top risk . In response to this serious threat, FINRA recently issued a Report on Cybersecurity Practices and delivered a webinar to help firms to protect their information and systems. During exams, FINRA expects that firms will have a real dialog about the steps they are taking, the groups they share information with, their testing and level of sophistication in their IT department. She concluded that you should hold your third party vendors to your own high standards, or you will open your firm to venerability.
Firm best practices: As first step, defend the perimeter of your firm from incursions by malevolent cybercriminals said Cohen. Telephone calls to clients to confirm requests and double authentication are tools in the battle. Take actions to protect your clients’ data and your firm’s proprietary information from insider threats as well. Review entitlements of those who have access to your clients’ data, such as Social Security numbers, assets, addresses, on ongoing basis. Make sure that people who have access to your systems and information actually need access to do their job. Monitor activity to identify higher risk employees and to spot unusual behavior such as employees logging on at 4am and printing 1000’s of pages. Also watch for malware that staff can inadvertently download with a simple click. “Make your house the hardest house in the neighborhood to break into” concluded Cohen.
Kosowsky added that clients appreciate the additional protocols firms are taking to protect their data, even when it means changing passwords every three months or getting a call back to confirm an order.
Creating a culture of compliance
FINRA’s perspective: A culture of compliance starts at the top of the organization , with both the Board and the Senior Executives. Firms reveal their culture by how they respond to requests for information, their willingness to be transparent, and by self-reporting issues, said Axelrod. To this point, Axelrod has seen the role of Chief Compliance Officer (CCO) elevated and being taken more seriously in the last 5 years.
Firm best practices: Senior management needs to thoughtfully document and communicate their cultural values to all their employees. One suggestion from Cohen is to make sure that “compensation reflects not just production, but compliance and reputational judgment” to reinforce the message. “Lead by example”, said Beuchner. If senior management is perceived as taking short cuts, then the reps in the field will also take short cuts. She suggested a compliance culture that’s “both firm and flexible.” She also recommended that senior leadership visit as many branch offices as possible to demonstrate that you both understand the business and want to grow the business the right way.
This article was written by Joanna Belbey from Forbes and was legally licensed through the NewsCred publisher network.