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FINRA Basics | How to Keep Your IT in Compliance & Avoid Costly Penalties

FINRA Basics | How to Keep Your IT in Compliance & Avoid Costly Penalties

Companies that work in the financial industry are subject to a number of different regulatory guidelines they have to adhere to. One of the regulatory authorities that enforces these rules and regulations is the Financial Industry Regulatory Authority (FINRA).

FINRA regulations cover everything from fair trading practices to accurate audit trails to conducting background checks on personnel. FINRA is a non-government organization but is overseen by the U.S. Securities & Exchange Commission (SEC) and is responsible for regulating every broker and brokerage firm that does business with the public in the United States.

As part of our cybersecurity and compliance services, Triada Networks assists financial services and investment firms with regulatory compliance, including FINRA. We’ve found that security is a process because technology is always evolving, so our IT support is designed to also be always evolving.

Fines and censure are two of the penalties FINRA imposes for firms that aren’t in compliance and being hit with either can significantly harm a company’s reputation as well as their bottom line.

Let’s take a look at what types of penalties non-compliant firms or brokers face and how you can use technology to help keep you from becoming one of them.

What Types of Penalties does FINRA Impose?

FINRA acts as a watchdog for investors to ensure that the firms that sell them financial products are adhering to good and fair business practices.

Some of the ways that FINRA regulates investment brokers and brokerages include:

  • Enforces compliance with FINRA and SEC rules
  • Promotes marketplace transparency
  • Ensures anyone selling a security product has proper testing and is qualified and licensed
  • Provides investor education
  • Ensures investors receive complete disclosure before they invest
  • Enforces high ethical standards

FINRA imposed $64.9 million in fines in 2017. (FINRA)

Besides the fines imposed, other penalties that non-compliant firms and brokers received in 2017 include:

  • 492 Individuals barred
  • 733 Individuals suspended
  • 20 Firms expelled
  • 29 Firms suspended
  • 855 Fraud/Insider trading cases referred for prosecution

Examples of FINRA Fines

Fines imposed can vary widely according to the infraction. One of the larger fines given recently was $1.25 million for failure to properly conduct timely or adequate background checks on non-registered personnel.

Here are a few recent examples from 2018 of what non-compliance with FINRA cost some financial services firms:

  • $27,500 for inaccurate data submitted to the Order Audit Trail System
  • $15,000 for failing to properly review, approve, document, and supervise private securities transactions by registered representatives
  • $971,289 and interest of $242,956 for failure to establish, maintain, and enforce a system to monitor the transmission of funds between customer accounts and third parties

Technology Solutions for FINRA & Regulatory Compliance

Triada Networks stays up to date on all forms of regulatory compliance for the financial services industry because it’s our specialty. Why do companies seek out Triada Networks? For over 20 years, we’ve worked with multiple investment service clients in NYC and New Jersey to make compliance easy and automatic.

If you’re just following a checklist from a website and think that’s enough to keep you in compliance with FINRA and SEC regulations, you may be facing a penalty in the near future.

Here are some of the technology solutions that can help you stay on the right side of regulatory compliance.

Multi-Pronged Security Applications

Applications like next-generation firewalls combine several security protections into one system. It’s like purchasing a building security package that includes locks for the door, security cameras, and an alarm system with all pieces working together for a more secure building perimeter.

With multi-pronged security applications, you get the same layered approach with things like end point security, network traffic monitoring, and proactive advanced cyber threat protection.

Anti-Phishing Software

The number one method for hackers to breach your network is through phishing emails targeted at unsuspecting staff members. Hackers bank on someone clicking a malicious link before they think, which allows them to enter your system and steal yours and your clients’ sensitive financial data.

We work with the world’s first automated phishing prevention, detection and response platform, IRONSCALES. It combines machine learning and human intelligence to detect and prevent dangerous system breaches.

Cloud-based Paperless Document Management System

Asset managers and financial services firms handle all types of sensitive data on a daily basis. Using a secure and encrypted cloud system for managing digital documents can help ensure they are kept secure and easily found when needed.

Paperless document management systems also include important user access safeguards so you can grant or revoke access to any user in a few keystrokes.

Business Continuity Plans

One of the cybersecurity recommendations that FINRA provides for small businesses has to do with planning for a response when a compromise happens and being able to implement a plan to recover lost or stolen digital records.

Business continuity and incident response go hand-in-hand and are vital for any business type. Our Triada Recover solution is a collection of critical services for business continuity that provide automated and ongoing protection from data loss and ensure quick incident recovery.

Looking for Some Help with FINRA & Regulatory Compliance?

Don’t risk going it alone when it comes to regulatory compliance. Triada Networks have been doing this for over two decades and we can take the hassle out of FINRA and SEC compliance by offering a fluid, affordable, and reliable solution.

Contact us today for a free consultation and free security scorecard, call 201-297-7778 or sign up online.