The Financial Industry Regulatory Authority, referred to as FINRA, is responsible for checking broker dealer compliance with SEC and FINRA regulations. This means that broker-dealers are subject to adhere to FINRA audit requirements during broker dealer audits.
While audits can be time-consuming, when done well they can put your firm in a solid position to meet regulatory requirements and identify areas for operational improvement. The goal of a broker dealer audit is to ensure your firm ethically mitigates any potential risks that could put you or your clients into hot water.
Before we discuss audit requirements, let’s dive into FINRA, its purpose, and what a FINRA audit entails.
What is FINRA?
FINRA is a regulatory agency under the Securities and Exchange Commission’s (SEC) umbrella, and it has the authority to write and enforce regulations concerning brokerages. Regulation by FINRA intends to protect investors’ interests and ensure broker firms are in compliance with to help reduce the amount of investment fraud.
In 2023, FINRA brought 610 disciplinary actions against registered broker-dealers and firms for their unethical behavior. Unethical behavior brings harm and monetary loss to the clients who trust their broker-dealers to manage their investments reasonably. Without a regulatory agency like FINRA, fraud would likely be more prevalent.
To prevent fraud and educate broker-dealers on FINRA audit requirements and regulations, broker firms must complete an audit at least once every four years or as often as annually.
What is a FINRA Audit?
A FINRA audit examines a broker firm to ensure its operations, sales practices, customer operations, and supervision comply with FINRA’s regulations.
While you might think of financial statements when you hear “audit,” FINRA audit requirements are much more involved. During an audit, an examiner will:
- Review a broker firm’s books, records, and operations, including customer accounts, trading activities, and anti-money laundering procedures
- Request documentation for examination and conduct interviews, both virtually and on-site
- Report any findings, recommendations, and violations
While an audit might uncover a potential violation of FINRA rules and regulations, this discovery is good overall. Once corrected, you can rest assured knowing your broker firm is doing what is best for your clients.
What are the FINRA Audit Requirements?
Because these audits are comprehensive, let’s look at FINRA audit requirements so you and your broker firm can prepare.
- Records Compliance: You might be required to keep documentation for customer accounts for a certain period. Your examiner will check for record-keeping compliance to ensure your documentation is correct.
- Anti-Money Laundering Compliance (AML): Your broker-dealer firm needs AML programs to detect suspicious activity. Your examiner will check for this.
- Registration: Are your firm’s licenses and registrations up-to-date?
- Market and Financial Integrity: This check will ensure no insider trading or other fraudulent activity is happening within the broker firm.
- Customer Protection: Your examiner will look for controls to protect your client’s funds and securities.
Assurance Dimensions: Your Partner for FINRA Audits
Broker dealer audits ensure your firm operates under rules and regulations to protect investors and the market’s fairness and integrity. While the FINRA audit requirements are comprehensive, they thoroughly review your firm.
At Assurance Dimensions, we have decades of experience as broker dealer auditors, and we’re ready to partner with you to ensure your firm’s compliance with the regulatory agency. Contact us today to learn more about our assurance and advisory services.