Maintaining Membership and Regulatory Standards Through Effective Broker Dealer Compliance

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Broker dealer compliance includes an ongoing obligation that requires technical knowledge. For many firms, such as smaller or limited-purpose broker-dealers, building and sustaining an in-house compliance infrastructure presents various challenges. Some partners provide full-service compliance consulting designed to address every stage of that process; this includes FINRA membership applications and ongoing regulatory support. Here are some ways to maintain membership and regulatory standards through effective broker dealer compliance:

The Role of the CCO

When the broker dealer compliance is established, the responsibility goes to the Chief Compliance Officer. The CCO administers the firm’s compliance program; they lead the adoption of written policies and procedures, and execute the annual compliance review. These processes involve substantive requirements that regulators review.

For smaller or limited-purpose firms, managing CCO responsibilities internally requires a level of qualified oversight that can be difficult to staff and sustain. Some consultants provide an outsourced CCO solution, like a qualified FINRA Series 24 registered principal. These individuals serve as the firm’s designated CCO on a retainer basis, and they develop a customized compliance program. They lead the adoption of written policies and procedures and execute the annual compliance review. Because DFP’s team works across multiple firms and interacts with regulators on a daily basis, they are positioned to react to regulatory changes on a timely basis. This helps to apply industry-wide best practices to each client’s specific situation.

The FINRA Application Process

The New Membership Application (NMA) process can review various items, such as background checks. It requires a thorough understanding of the firm’s business model and the ability to formulate appropriate responses to FINRA information requests. Support helps with preparedness for the membership interview itself.

Navigating this process without experienced guidance may risk delays or an unsuccessful outcome. Some partners or consultants assist the entire NMA process from start to finish. They have an extensive background and have represented firms of varied size and structure; they bring direct familiarity with the range of situations FINRA examiners may raise. The detail-oriented nature of FINRA’s review process demands consultants who are skilled in that meticulous work.

The Financial Operations 

Every broker-dealer must maintain the services of a FINRA Series 27 Financial and Operations Principal. The FinOp oversees the firm’s books and records; they monitor adherence to industry net capital rules and related regulations. Part of their responsibilities includes managing the filing of all financial regulatory reports. These are non-negotiable requirements, and a failure to meet them creates direct regulatory exposure for the firm.

An outsourced FinOp can assume and assist with all aspects of the required role, including managing financial duties. They also handle FINRA filings and provide technical assistance. Rather than relying on a single full-time hire, firms gain access to the full team of FinOp and accounting professionals. 

All broker dealers need to designate a Principal Financial Officer and a Principal Operations Officer. Some consultants offer extensive experience outsourcing both of these positions, covering responsibilities such as the receipt and delivery of securities and funds. It also includes safeguarding customer and firm assets, and processing dividend receivables and payables.

The RIA Registration

For firms that include an RIA (Registered Investment Adviser) alongside broker-dealer operations, the compliance landscape has certain requirements. Registration with the SEC or with individual state regulators requires specific documentation, including all parts of Form ADV. Other items involve compliance manuals and a review of marketing materials. 

Some consultants offer compliance solutions for investment advisers; this includes facilitating registration with any state or the SEC. They also act as or assist the firm’s CCO and support the firm’s ongoing compliance obligations. While ERAs are not subject to the same registration requirements and record-keeping rules as fully registered RIAs, they remain responsible for anti-fraud rules and pay-to-play provisions. Consultants help ERAs with compliance policies and procedures designed to avoid securities violations and protect investor information.

Broker Dealer Compliance

Broker-dealer compliance involves membership applications, ongoing CCO responsibilities, and investment adviser registration. Each process has its own set of regulatory standards that must be met consistently and accurately. Some consultants and partners provide the full-service compliance infrastructure that broker-dealers and investment advisers need to meet FINRA requirements. Contact firm consultants near you to learn more about the broker compliance requirements and more.