FINRA Targeted Exam Letter: Establishing, Communicating, and Implementing Cultural Values

February 24, 2016

On February 18, 2016, FINRA posted guidance detailing its process for reviewing firms’ cultures. In its 2016 Regulatory and Examination Priorities Letter, FINRA outlined its interest in monitoring the effects of firm culture on both customers and firms themselves. The guidance appears to be a “sweep” letter whose recipients currently remain undetermined.

Per the letter, FINRA intends to meet with several members of a firm's management during an examination, including executive business, compliance, legal, and risk management staff. As part of discussions around how a firm establishes and monitors its culture, FINRA will also look to ascertain how elements of a firm’s culture get disseminated throughout the organization.

FINRA requests eight specific areas of documentation in advance of an on-site review, including documents related to:

  1. policies that determine a firm’s culture;
  2. how a firm promotes widespread establishment of these policies;
  3. how a firm measures the impact of cultural values;
  4. systems a firm uses to identify policy breaches;
  5. how a firm addresses these breaches;
  6. policies that identify and address subcultures that may undermine cultural values;
  7. how compensation practices support the firm’s culture; and
  8. how cultural values affect promotions, compensation, bonuses, etc.

The publication of the original examination priorities letter generated questions about how FINRA would examine a firm’s culture. This guidance sheds some light on how FINRA intends to meet this objective.

Please contact your ACA consultant or Dee Stafford in the Los Angeles office at (310) 322-8840 for more information or guidance regarding the implications of FINRA’s sweep letter.