FINRA Releases FINRA360 Progress Report
April 24, 2018 by Melanie Waddell
The Financial Industry Regulatory Authority released Tuesday a progress report on the self-regulator’s FINRA360 initiative — a top-to-bottom review of the broker-dealer regulator that was launched in March 2017 by FINRA CEO Robert Cook.
The multi-year program will continue this year with a major focus on FINRA’s examination program, to be spearheaded by FINRA’s new head of member supervision, Bari Havlik, who starts at the self-regulator on Monday, Cook told ThinkAdvisor in a Tuesday phone interview.
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Havilk, who most recently was senior vice president and chief compliance officer of Charles Schwab, replaces Susan Axelrod, who is joining Merrill Lynch Wealth Management.
Cook said during the interview that FINRA will be looking this year at the “overall structure” of the three-pronged exam program, specifically to assess whether more coordination is needed among the three exam groups or if they should be consolidated.
As noted in the 42-page report, FINRA began using a planning framework for its calendar-based examination programs in 2018 “so that the depth and breadth of exams under this planning framework will more closely match the risks of the firm being examined, avoiding a ‘one-size-fits-all’ approach.”
How does he feel about the program’s first year? “I’m tremendously proud about the work the team has done [on FINRA360] in the last year, and the progress we’ll be making in the year to come,” Cook said. “If anything, this exercise demonstrates the benefits of good old-fashioned listening, engaging and improving.”
Cook added: “One of the interesting things to me is that this [FINRA360] exercise has highlighted that there are tremendous opportunities to reduce burdens on firms without jeopardizing investor protection.”
But FINRA’s exam program is “by no means” the only area of focus, Cook said during the interview, with the self-regulator also looking this year at its organizational structure and how its “policymaking groups are organized internally — who’s responsible for developing and articulating policy.”
As to whether the Securities and Exchange Commission’s newly released standard of conduct proposal for broker-dealers and advisors will influence the FINRA360 initiative moving forward, Cook said that FINRA “will engage with the SEC” on the proposal as the agency takes comments “on how it wants to proceed.”
FINRA “is doing a lot of work outside of FINRA360 every day,” Cook said. “We’re constantly innovating and adapting to new risks and regulatory direction.”
Cook added: “Everything the SEC does in final form, we adapt our exams accordingly.”
As to the merging of FINRA’s two enforcement divisions under FINRA360 over the last year, Cook said that project “took a lot of work,” but that it’s “progressing remarkably well” and that the integration is “essentially complete.”
As it stand now, FINRA has “one enforcement team that is operating as a unified group,” Cook said, adding Susan Schroeder, the new head of that group, will “continue to evolve the program” this year.
The self-regulator will also continue its retrospective review of its rules this year.
While not part of that review, FINRA requested comments Monday via Regulatory Notice 18-13 on its proposed amendments to the Quantitative Suitability Obligation Under FINRA Rule 2111. The proposal would change the suitability standard to require brokers to have liability for excessive trading even if the broker did not exert control or discretion over the client’s account.
How long will FINRA360 take to complete? “I’ve always said this is going to be a multi-year exercise,” Cook said. “I don’t have a specific deadline — it’s an iterative and ongoing process. We get feedback, we act, we learn.”
