The Financial Industry Regulatory Authority, Inc. (FINRA) posts the disciplinary actions it took to its online database. It also posts a monthly summary of these actions, which is a worthwhile read for those in the industry – if only to gain insight into FINRA’s regulatory priorities. (Okay, it’s not as entertaining as Federal Baseball, which I do recommend for Washington Nationals fans. (I know, it’s been a tough year.) Below I offer a thought on FINRA’s August 2025 edition.
FINRA wrote: “[t]he firm’s AML procedures, which, until January 2023, were not in any way customized to the firm’s business, stated that the firm would monitor for suspicious trading activity using exception reports but did not describe what exception reports the firm would use or how the firm would review those reports to identify red flags of suspicious trading.” Indeed, procedures are the spine of any broker-dealer’s or investment adviser’s compliance program. These inform associates what is expected and guide compliance officers in real time. And when examiners show up, what do they request first? The firm’s procedures.
Sure, there are plenty of canned procedure manuals in the market—and yes, some are an internet search away. However, adopting one of these does not mean the firm has covered its compliance obligations. It means that the firm has just started its work. FINRA is right: a firm must tailor its procedures to its business. Otherwise, the firm has policies that may look good on paper, but are ignored in practice. This is a bigger problem than having no procedures at all.
This balancing act is half science, half art. I break down how to blend the two in The ABCs of WSPs, Also, broker-dealers have the opportunity to audit their procedures against FINRA’s checklist, which can be a helpful sanity check.
Because broker-dealers, registered investment advisers and their representatives want to spend their time serving their clients, not their regulators.
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