The Financial Industry Regulatory Authority, Inc. (FINRA) posts disciplinary actions to an online database. It also publishes a monthly summary of these actions, which is a worthwhile read for those in the industry—if only for insight into FINRA’s current priorities. Below, I offer my thoughts on FINRA’s August 2026 edition.
Recalibration
I just attended MaxLawCon 2026, a conference devoted to the business of operating a law firm. Among the many valuable takeaways was the lesson that a process or system that worked for a law firm at one point may not be able to support the firm today. Introspection and recalibration are key.
Compliance programs can have a similar problem. A process that works well for one business may not work for another. And a process that worked when a firm was smaller may become less effective as the business grows.
Several matters in FINRA’s August report brought this to mind.
- One firm relied on a manual review of its daily trade blotter to identify potentially suspicious activity. That may have been manageable when the firm had limited trading activity. But as the business grew, the firm continued using the same process, which was not designed to detect suspicious trading patterns across multiple accounts or days. Even after implementing automated surveillance, the system initially failed to capture options trades.
- Another firm used an automated surveillance system to detect potential spoofing. The system looked for orders cancelled within seconds of an execution. That approach did not adequately account for thinly traded options, where orders can remain open for minutes. The surveillance system was operating as configured. The configuration was the problem.
- In another matter, a firm used search terms to identify potential customer complaints in written survey responses. Those terms had originally been developed for consumer banking products rather than broker-dealer complaints. As a result, the firm failed to accurately report thousands of written customer complaints.
In June’s Ask One More Question, I discussed the importance of questioning supervisory processes rather than simply relying on them. August’s report offers another reason to ask those questions.
Is the surveillance still appropriate for the business?
The Lesson
There is a reason we rely on established processes. They create consistency, save time, and allow us to focus on other responsibilities.
But businesses change. A process that once worked well may no longer be up to the job.
In May’s The Comfort Crisis, I wrote about the risks of becoming too comfortable with existing compliance systems. And in July’s Check the Box and Miss the Point, I discussed the difference between completing a process and accomplishing its intended purpose.
August’s report suggests a related question: Has the business outgrown the process?
A few questions worth considering during the next compliance review:
- Has the firm’s business changed since this control was implemented?
- Are surveillance parameters appropriate for the products and transactions being monitored?
- Does the process capture the activity it was designed to capture?
- When was the last time someone tested whether the process still works as intended?
There is no need to reinvent the wheel every time the business changes. But it is worth making sure the wheels still fit.
Because broker-dealers, registered investment advisers and their associates want to spend their time serving their clients.
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