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Manage Tomorrow's Surprises Today

Steven Minsky

Investment Firms Failing To Meet FINRA Enterprise Risk Management Requirements

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In the last year alone, FINRA has disciplined more than 1,000 companies and individual investment advisors with over $34 million in penalties over failure to meet enterprise risk management requirements.

FINRA, the Financial Industry Regulatory Authority, is dedicated to investor protection and market integrity through effective and efficient regulation of the securities industry. A key focus has been due diligence on third parties, which covers warehouses, banks and RIAs.

Specifically, FINRA has called out product and vendor due diligence as a high priority for examinations on Investment Advisor and Broker-Dealer Firms. Due diligence of this magnitude, covering hundreds or even thousands of alternative investment products, spans multiple products that are issued by numerous investment firms. This makes the process costly and complex, as it requires both financial and human resources to manage and engage third parties.

The SEC and FINRA have moved away from describing the treatment of individual products, and have transitioned to an enterprise-wide, risk-based approach. Meanwhile, organizations are struggling with manual processes, timeliness of outreach and response from third parties, and concerns of their ability to provide evidence of due diligence during their exams.

Over the course of 2014, FINRA has already made a significant statement on the rigor of their examination process, and their commitment to regulatory action for those firms that are not meeting their enterprise risk management mandate:

·         Over $26 million in company fines, over $8 million in individual fines

·         Over 1,000 disciplinary actions on individuals with 646 employees sanctioned by disbarment or suspension

·         96 complaints filed with 8 firm suspensions and expulsions

An effective and robust enterprise risk management and governance framework allows companies to meet all FINRA compliance requirements. Had these firms put such a program in place, they would have avoided or completely eliminated any penalties and employee or company sanctions.

Under Federal Sentencing guidelines, having a demonstrable enterprise risk management plan and software infrastructure for improvement can greatly reduce or even exempt companies from compliance and enforcement actions including monetary penalties.

For more information on how to get an ERM program and a third party due diligence program that meets FINRA requirements up and running in less than 90 days, download this package.


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In this blog, risk expert Steven Minsky highlights the differences between traditional risk management and true enterprise risk management, which is about helping things happen rather than preventing them from happening. Manage Tomorrow's Surprises Today is designed to help you think about risk in new ways and learn how to benefit practically from this rapidly evolving field.

Steven Minsky

Steven is the CEO of LogicManager, Inc. the leading provider of ERM software solutions. Steven is the architect of the RIMS Risk Maturity Model for ERM, author of the RIMS State of ERM Report among many other papers, and a RIMS Fellow (RF) instructor on ERM. Steven has conducted ERM and RIMS Risk Maturity Model training for hundreds of organizations around the globe. Steven is a patent author of risk and process management technology and holds MBA and MA degrees from the University of Pennsylvania’s Wharton School of Business and The Joseph H. Lauder Institute of International Management. You can reach Steven at steven.minsky@logicmanager.com.

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