What are the biggest hurdles financial firms face with FINRA (Financial Industry Regulatory Authority) regulations? And how can you manage these challenges and avoid possible risks and penalties?
If you’re asking these questions, then this article is for you.
Intelligent Technical Solutions (ITS) specializes in compliance solutions tailored to help financial firms meet regulatory requirements. Our goal is to protect your technology while ensuring you stay ahead of potential risks and penalties.
That is why we’ve created this list of the top 10 FINRA compliance challenges. We want to help firms overcome these problems by providing actionable solutions to each challenge. Sean Harris, ITS’ Senior VP for Cybersecurity, also shared his thoughts on this topic.
By the end of this article, you’ll have strategies to handle recordkeeping, cybersecurity threats, anti-money laundering requirements, and more.
1. Maintaining recordkeeping requirements
FINRA compliance involves a ton of records. Financial firms need to maintain a complete record of transactions, communications, and other relevant activities. This often involves large volumes of data, making organization and retrieval a struggle.
How to solve it:
Implement advanced recordkeeping software that automatically organizes and stores data according to FINRA guidelines. Regular audits and updates to these systems also help maintain compliance.
2. Preventing and overcoming cybersecurity threats
You don’t need anyone to tell you how bad it gets when hackers get access to your financials and customer data. And because of possible repercussions, maintaining cybersecurity requirements in such a high-risk industry like finance is a huge undertaking.
It’s an understatement to say protecting sensitive client data – while complying with FINRA's cybersecurity requirements – is demanding.
How to solve it:
You need to get an IT expert – or a team of experts – to spearhead the adoption of cybersecurity measures such as multi-factor authentication (MFA), encryption, regular vulnerability assessments, and employee security training.
3. Complying with Anti-Money Laundering (AML) requirements
Firms must have effective AML programs to detect and report suspicious activities. Keeping up with evolving regulations and sophisticated laundering techniques is a constant challenge.
How to solve it:
Use specialized AML software to monitor transactions and flag unusual activities. Regularly update your AML program to align with the latest regulations and provide ongoing training for employees.
4. Consistent checks-and-balances
Ensuring all activities comply with FINRA regulations requires robust supervisory systems. This includes monitoring employees and maintaining oversight of all transactions and communications.
How to solve it:
Develop a clear supervisory framework with defined roles and responsibilities. Utilize technology to streamline supervision and ensure that all activities are tracked and reviewed consistently.
5. Following all advertising regulations
FINRA imposes strict rules on advertising and communications with the public. Ensuring all marketing materials comply with these rules can be challenging, especially with the rise of social media.
How to solve it:
Create a detailed compliance checklist for all advertising materials. Have a dedicated compliance team review all public communications before they are published to ensure they meet FINRA standards.
6. Up-to-date employee training and education
Keeping employees informed about the latest FINRA regulations and compliance practices is essential for maintaining compliance.
How to solve it:
Develop a comprehensive training program that includes regular updates and refresher courses. Use a combination of in-person training, webinars, and online modules to cover various aspects of FINRA compliance.
7. Avoiding conflicts of interest
Identifying and managing conflicts of interest, such as those related to compensation, is a key aspect of FINRA compliance. Firms must have procedures in place to detect and mitigate these conflicts.
How to solve it:
Establish clear policies and procedures for identifying conflicts of interest. Use disclosure forms and regular training to ensure all employees are aware of potential conflicts and how to handle them.
8. Accurate and timely trade reporting
Accurate and timely trade reporting is a critical requirement. Any errors or delays can result in significant penalties.
How to solve it:
Implement automated trade reporting systems to ensure accuracy and timeliness. Regularly audit these systems to identify and correct any issues promptly.
9. Handling customer complaints
Firms must have procedures in place to handle customer complaints efficiently and in compliance with FINRA rules.
How to solve it:
Create a standardized process for logging, investigating, and resolving complaints. Ensure all employees are trained in this process and understand the importance of addressing complaints swiftly and effectively.
10. Managing financial and operational risks
Maintaining financial stability and managing operational risks are critical for compliance. This includes meeting capital requirements and having adequate risk management practices.
How to solve it:
Develop a risk management framework that includes regular stress testing and scenario analysis. Ensure your firm has adequate capital reserves and liquidity to meet FINRA's requirements.
Ready to Become FINRA Compliant?
Facing FINRA compliance challenges can feel daunting, with the pressure to meet stringent regulations while maintaining smooth operations. These challenges include managing extensive recordkeeping, ensuring robust cybersecurity, and implementing effective anti-money laundering measures.
Each issue poses significant risks, but the solutions discussed in this article can help you tackle them head-on.
By adopting advanced recordkeeping software, enhancing cybersecurity protocols, and leveraging specialized AML tools, your firm can navigate these challenges more effectively.
Ready to strengthen your FINRA compliance strategy? Contact ITS today to learn how our comprehensive IT and cybersecurity solutions can support your firm in overcoming these challenges. Together, we can safeguard your operations and ensure regulatory compliance.
You can also check out our Learning Center resources on compliance:
- What Happens If My Company Is Out of Compliance [Video]
- Can an MSP Help You with Regulatory Compliance?