Finra to revamp market examination process for broker-dealers

Organization will center on branch-level activity; canvassing data from providers

Jun 28, 2011 @ 12:52 pm

By Darla Mercado

Finra will take a data-centric approach to performing market exams, pulling reams of information from broker-dealers, insurance companies and clearing firms.

The initiative was announced today by Rick Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority Inc., at the Insured Retirement Institute's Government, Legal and Regulatory Conference in Washington.

“As I go around the country and sit down with our members, the consistent thing I've heard about Finra is the basic concern that while there's a great deal of respect for the examiners and the examination program, there's frustration that the examiners come in and don't understand the firms, that they're not focused on the areas that are most critical to the firm,” Mr. Ketchum said.

As a result, the organization developed a program centered on risk analysis and combined that with increased outreach to broker-dealers at the branch level. Finra had brought on 20 more coordinators to carry out its increased communications with broker-dealers, bringing the total number of surveillance-focused staff to 90, Mr. Ketchum said.

Finra has also been working with major clearing firms and carriers to harvest data for risk analysis. That ought to lead to more pointed examinations, Mr. Ketchum said. “We're digging deeper into areas that pose the most risk to ensure that examiners are asking the right questions,” he added. “We're going to spend more time in our offices than your offices, collecting data.”

Ultimately, Finra would like to develop standard data feeds with other industry members, Mr. Ketchum said.

Most recently, Finra in April canvassed life insurance companies, collecting information to focus on the products most frequently sold by retail firms. In the next few weeks, the organization expects to place a second request to additional variable annuity manufacturers, Mr. Ketchum noted.

An audience member asked the Finra chief if he had noticed a large number of variable annuity sales gravitating toward only a handful of insurers. The lion's share of the VA market belongs to Prudential Financial Inc., MetLife Inc. and Jackson National Life Insurance Co.

“We've noticed it and we're very focused from a manufacturer standpoint with respect to disclosure,” Mr. Ketchum said. “From that standpoint, we're looking at the incentives firms are provided to ensure that they're fully disclosed.” He added that he would try to learn more about the issue.


What do you think?

View comments

Recommended for you

Featured video


What's next at CAIS?

With a strong 2017 behind them, CAIS doesn't want to lose sight of its clients as it embarks on 2018. Matt Brown explains how a new adviser council will help the firm grow in the year ahead.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

RIAs struggle to keep clients grounded amid stock market euphoria

With equities at record levels, financial advisers are confronted with realities of greed and fear.

Regulators showing renewed interest in cracking down on investment fees

SEC, Finra targeting high-fee share classes, 12b-1 fees and failure to give sales load discounts and waivers to investors.

Tax update: Brady says sales tax deduction in final bill

Taxpayers will be able to deduct state income taxes or state sales taxes in addition to property levies — up to a $10,000 cap.

Broker, retirement groups make last-minute pleas to change tax legislation

Pass-through provisions are target of groups representing employee-model brokerage firms, as well as retirement plan advisers.

House and Senate reach tentative compromise for tax overhaul

Lawmakers still need to get a cost analysis of their agreement, so it's not yet definite, according to a source.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print