The rise in regulatory fines

How FINRA compliance consultants ease enforcement action outcome

Regulator examiners are focused on deterring fraud and uncovering supervisory failures, but aren’t expected to draft tailored compliance programs and procedures for a firm. Firms that need this type of assistance reach out to qualified FINRA compliance consultants for guidance. Additionally, FINRA experts are often called upon by either firms or regulators to supervise remediation efforts and monitor on-going compliance activities.

Benefit of hiring a FINRA consultant to assist in remediation

FINRA compliance consultants improve enforcementOne of the benefits of on-boarding a compliance consultant to resolve a violation is having them communicate directly with the regulatory examiner. A consultant with appropriate credentials, such as a General Securities Principal Series 24, can directly communicate procedural changes to enforcement examiners while providing an added sense of relief to the firm’s managing members and confidence for the regulator. Additionally, if new business practices are recommended, the business owner may benefit from better devised solutions through an expert in compliance, rather than an examiner who’s focus is limited to regulation and not hands-on compliance supervision.

Regulators realize they get a benefit from member firms who employ FINRA or SEC consultants in resolving their remediation concerns and value the partnership. Regulation consultants have expertise that extends beyond resources of regulators, which increases examiner confidence. Use of a compliance expert often demonstrates to regulators that the firm takes the violation seriously and is committed to improving. Most firms find, outsourcing to a compliance firm outweighs the cost by getting matters settled sooner and with less frustration. Managing partners also benefit by eliminating uncertainty in interaction with the examiner, so they can focus on assuring clients and helping the business recover from negative press or otherwise.

In some instances, a regulator will require a compliance expert for remediation and on-going monitoring. Settlement may include reviewing transactions, determining whether responsibility lies upon officers or employees, and uncovering additional victims.  Delegating this responsibility onto the compliance consultant does not come lightly. Regulators will seek complete independence between the parties. Restrictions of working together in the past and/or future will be part of the agreement; to ensure conflicts of interest are eliminated.

It’s possible the compliance firm may be asked to enforce the necessary settlement reparations. They may take on the responsibility to calculate and release agreed disbursements for the firm. This gives the regulator confidence the settlement shall be paid under the terms of the enforcement agreement. In such cases, the compliance firm is generally required to submit a report to the regulator showing proof of activities on a scheduled basis. By assigning these tasks to a compliance consultant the regulator can move on to other cases needing attention without the work of verifying receipts or calculating damages. When a mandated restitution is expected to be resolved over several months or a few years, outsourcing to a consultant can significantly shift the burden away from examiners and make life for the firm easier as well.

In some cases, regulators run a risk by mandating support from a outsourced compliance expert. Compliance consultants look at policy and procedure compliance from a perspective that differs from the view of examiners. Occasionally a compliance professional will interpret the degree of egregiousness different than the examiner. The compliance professional may assert the examiner was too strict in applying the rule, or even too broad. These types of discrepancies may delay resolution of an enforcement case until resolved. Therefore, it is important to work with a compliance consulting firm with strong experience in enforcement matters that knows how to demonstrate their own assessment clearly to regulators if necessary.  A seasoned compliance professional may even be able to draw a conclusion that sanctions imposed by the regulator are disproportionate to the level of misconduct. In this type of situation, it is important to have a solid team of compliance professionals advising your firm before coming to a resolution agreement.

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Does your FINRA, MSRB, or SEC member firm need assistance navigating remediation for an enforcement action or exam? Our professionals are highly experienced with regulatory rules. We develop policy and procedure manuals for Broker-Dealers, RIAs, Municipal Brokers, Private fund managers, and more. Our expertise is vertically integrated compliance solutions for firms; bringing business planning, operations, trading, and registration. RND professionals provide –

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FINRA Report January 2017: Distributed Ledger Technology for the Securities Industry

Distributed Ledger Technology (DLT) has been gaining ground in the financial services sector for a few years now and as with many emerging technologies, adoption is slow for authorities such as FINRA and SEC.  

However, tying it all together between state regulations, international exchanges, clearing houses, banking systems, and more is proving to be a challenge for regulating authorities which are often tasked with providing clear and concise oversight based on existing data sets and future paradigms.

Implementing DLT for BDs and RIAs

New era Fintech developers are hoping to see flexibility and adaptability in new regulation rulings for the securities industry; where past rulings and actions would often stifle technology growth because rules had been devised based on historical recordkeeping processes; systems which are less efficient since the wakening of distributed ledgers. Broker-dealer and RIA firms that are eager to modernize and gain a competitive advantage are challenged in finding ways to apply best practice approaches for compliance with books and records rules as well as many other areas of regulatory compliance.

To advance through obstacles, consortiums and start-ups have developed sandbox environments where Fintech innovators can experiment and test ideas. In the beginning there were blockchains, however disadvantages were uncovered in the all access central ledger of “write-only-read-many” (WORM). Seeking new technology designs developers expanded on the role and purpose of ledger distribution, and added smart contracts to help round out automation. This sparked the development of distributed ledger technology which builds upon information restrictions based on a party’s relevance in the transaction.

In January 2017 FINRA released the report “Distributed Ledger Technology: Implications of Blockchain for the Securities Industry” outlining discussion about challenges facing regulated firms and regulators. The report addresses several potential risks and concerns, and poses numerous questions for feedback from the financial services industry. FINRA also discusses various methods of incorporating DLT while factoring in questions about its risk in applications. Market applications being researched for DLT include:

  • Equity market – administration purposes in tracking transfer of shares, fulfilling privacy restrictions, and developing real-time settlement recording
  • Debt market – creating faster clearing and settlement turn-around and automating bond payment and coupon redemption
  • Derivative market – simplifying complex post-trade events with automated processes and transparency
  • Industry utilities – developing a central repository of reference data for securities products, thus eliminating the need for each participant to maintain their own reference data

The FINRA report dives into concerns such as market efficiency and how real-time trade settlements could impact operations; desired level of transparency and disadvantages to non-market players; the role of intermediaries and blurring of line between execution and settlement; and operational risk from data sharing.  

In exploring opportunities and evaluating risk of DLT applications, FINRA opened a window of comment through March 2017 where industry participants and technology developers were able to provide feedback on methodology and challenges. The January 2017 report by FINRA on Distributed Ledger Technology outlines many of the challenges FINRA has identified and asks for comment regarding governance concerns, operational structure designs, and network security considerations.

Broker-dealers exploring the possibility of issuing and trading securities using automated actions, or maintaining records on a DLT network are advised to be cognizant of federal and state laws as well as regulatory guidelines from authorities such as FINRA and the SEC. RND Resources Inc is familiar with DLT approaches and provides guidance to BD’s and RIA’s pursuing a Fintech strategy. Contact us to discuss your next move.


Download a copy of the FINRA | Distributed Ledger Technology: Implications of Blockchain in the Securities Industry

(DLT) Distributed Ledger Technology improves financial industry efficiency, transparency, post-trade processing, and operational risk. RND Resources is leading the way for Broker-dealers and Registered Investment Advisors. We assist with start-up development of Fintech strategy and provide consulting services for firms seeking emerging technology solutions or development of DLT, blockchains, and smart contracts. Our expertise includes:  

DLT | Smart Contract Framework Implementation & Testing Firms we can help
Regulatory considerations Governance Broker-Dealers
Procedures – Recordkeeping Cybersecurity RIA / Investment Co
Materiality impact Supervision High Frequency Traders
Digital currencies / securities Carrying & clearing Wealth – Private funds
FINRA & SEC Registration Automating actions Robo-advisors / online services

Sentry Software for Compliance Management

All Compliance Consulting and Regulatory Support Firms are Not the Same


RND Resources, Inc. works hard to prove that compliance can run more efficiently by automating and integrating processes. Doing so, allows firms to grow without being held back by compliance capability restrictions.

      Part of the work we do at RND includes supporting small independent firms or providing compliance partners expertise on a specific matter. We’re able to do this because we have a team of veteran FINRA specialists and FINRA experienced examiners who work closely to identify customized solutions. We find outside of the box solutions that allow firms to prosper and grow without being held back by regulatory demands.


Sentry Software for Compliance Management      Some clients have in-house compliance departments that are over-whelmed with too many reviews and procedure or policy changes. They have a difficult time keeping up the workload. Unable to respond and quickly handle the needs of the firm, they hold the firm back from growth strategy.  In this case RND Resources is able to provide much needed support and guidance. So, the limitations of the compliance department are no longer a limiting factor to the firm’s success. Our services are scalable. We grow with each firm, keeping them in focus and up to date at all times. At the same time, our experts provide the guidance needed to successfully introduce and manage new program offers.


      To further improve our commitment to efficiency and transparency we’ve added Sentry, a software-as-a-service, for our clients. Sentry provides clients with access to our proprietary checklists and processes in a seamless, integrated, software solution.  By combining Sentry with our support team, firms are given greater flexibility to track regulatory data and run up-to-the-minute audits.  Improved response rate and accuracy are just a few of the benefits of the Sentry solution.

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