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Wrong Way to Change SEC, FINRA Exams Under Trump

June 22, 2017

by Howard Haykin says, "President Trump's anti-regulation agenda will yield fewer but more focused SEC and FINRA examinations - that, according to 'compliance experts'. One such expert, Doug Tyre of Cipperman Compliance Services, says:


“The nature of examinations has typically become more focused in scope," adding that such “deeper dives” pose a greater burden on firms because the regulators probe the issue “at a much more profound level.”


If such an approach to regulatory oversight becomes reality, then all I can say is the SEC and FINRA are making a big mistake.


For regulators to be effective, they need strong relationships with the firms they oversee. And with all relationships, communications is key. Communications come with dialog and interaction. So, how can conducting fewer examinations lead to strong, effective relationships? IT CAN'T! No matter how focused or deeply scoped the exam agenda may be.


FINANCIALISH TAKE AWAY.    This writer has always been a proponent of frequent, quick strike audits and exams - and top-down, rather than bottom-up, reviews of companies and their inherent systems. For example:


  • Why visit a registered investment advisor, or RIA, once every 3-4 years for a "soup-to-nuts" exam, when field examiners can conduct more frequent exams that focus on just 1 or 2 areas at a time - e.g., broker-dealer relationships, advertising, or trade allocations among separate accounts?
  • Why examine a handful of trades out of thousands executed at a broker-dealer, when field examiners can better assess the competency of firm's staff through directeds Q&A or interview sessions?


By visiting B/D's and RIA's more frequently, while changing up the exam agenda and scope, regulators will get more "bang for the buck." The SEC and FINRA will not only improve their relationships with financial institutions, but they will influence brokers and advisors to take a more serious approach to their overall supervisory policies and procedures. 


Your thoughts, Messieurs Robert Cook and Jay Clayton?