FINRA, or the Financial Industry Regulatory Authority, is an organization that oversees the activities of broker-dealers & registered representatives in the United States.
As a broker-dealer or a registered representative, you are required to comply with FINRA rules and regulations, as well as the rules of other regulators such as the SEC, the MSRB, and the SIPC. Failing to do this can result in fines, suspensions, bars, or even criminal charges.
For example, FINRA imposed 1,397 sanctions and collected over $134 million in fines in 2014. The fines dropped to $93.8 million in 2015 but rose back to $173.8 million in 2016.
Therefore, it is crucial to have a My RIA Lawyer in Atlanta on your side to avoid common mistakes that can jeopardize your compliance status and expose you to regulatory risks.
But no more talk — let’s have a look at four common mistakes to avoid in FINRA compliance.
Top 4 mistakes you must avoid in FINRA compliance
1) Not having an effective compliance program
One of the most fundamental requirements for FINRA compliance is having a written compliance program tailored to your firm’s business model, size, and risk profile.
It must include policies and procedures that address all aspects of your operations, such as supervision, recordkeeping, reporting, customer protection, anti-money laundering, business continuity, and more.
This way, you demonstrate your commitment to compliance and foster a culture of ethics and professionalism within your firm.
Unfortunately, creating a compliance program without the help of an experienced securities lawyer is not easy. So, make sure to have legal assistance by your side when doing so.
2) Not communicating clearly and honestly with customers
Being dishonest and having unclear conversations with clients can result in regulatory violations. Remember that FINRA rules require you to deal fairly and honestly with people at all times.
This means that you must:
- Provide accurate information about the products and services that you offer
- Disclose all material facts and risks associated with any investment recommendations
- Avoid making any false, misleading, or exaggerated claims or promises
- Not make any unsuitable or unauthorized transactions on behalf of your customers
As you can see, it’s easy to fall into any of these pitfalls, especially making exaggerated claims or promises.
But you must stay true to your clients, so you can build a trustworthy relationship with them, enhance your reputation in the industry, and stay at arm’s length from any potential disputes or litigation.
3) Not keeping accurate and complete records
Another common FINRA compliance mistake is not keeping the records of your business activities complete and accurate.
These include:
- Customer account information
- Customer orders and confirmations
- Customer complaints and resolutions
- Trade executions and allocation
- Supervisory reviews and approvals
- Regulatory filings and reports
Any discrepancies or errors in your records can raise red flags and trigger inquiries or examinations from FINRA or other regulators.
New FINRA guidelines also highlight the importance of building detailed social media procedures and policies for US broker-dealers, which is another area you should pay attention to.
4) Not updating your registration and information
Last but not the least, not updating your registration is another FINRA compliance mistake to avoid. Registering with FINRA and obtaining the appropriate licenses before engaging in any securities-related activities is a must and no exceptions are accepted!
So, you must update your registration and licensing whenever there are any changes in your personal or professional information, such as name, address, phone number, email, etc.
However, make sure you update your information only through the official FINRA Central Registration Depository (CRD) system, which is an online database that disseminates information about broker-dealers as well as registered representatives.
Also, don’t forget to notify your firm and your customers of any material changes in your registration and licensing.
Now you know common mistakes to avoid in FINRA compliance
Navigating the intricate world of FINRA compliance is not for the faint of heart. The repercussions of making errors in this domain are severe and can gravely impact a broker-dealer or registered representative’s reputation and livelihood.
But as we have outlined, some of the most common mistakes are avoidable with the right knowledge and guidance. This is where the expertise of a professional, such as one from My RIA Lawyer becomes invaluable.
With a seasoned ally by your side, you can ensure that you are not only compliant but also foster a culture that is built on trust, honesty, and transparency.
After all, in the financial world, compliance is not just a set of guidelines; it’s the foundation of lasting and successful relationships with clients.
