The Financial Industry Regulatory Authority, Inc. (FINRA) posts the disciplinary actions it has taken 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. Below, I offer a thought on FINRA’s October 2025 edition.
In sanctioning a member firm – and in a rare instance, its CCO – FINRA wrote: “In addition, FINRA found that the firm and [the CCO] failed to establish and implement anti-money laundering (AML) policies and procedures and conduct adequate AML training. … [The CCO] testified that the firm purchased the AML procedures from a vendor and did not alter the generic list of red flags that came with it and as a result, the list was not tailored to AML risks of the firm’s primary business of penny stock trading and penny stock liquidation.”
I made this point during a previous review of FINRA’s disciplinary actions, but it bears repeating: Compliance procedures are the spine of a broker-dealer’s or investment adviser’s compliance program because these inform associates what is expected of them. When examiners show up, what do they request first? The firm’s procedures.
There are plenty of stock 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 because, as noted above, it must tailor these to its business. Otherwise, it has policies that may look good on paper, but are ignored in practice, which is a bigger problem than having no procedures at all. This is a balancing act of science and 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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