Reinforcing the culture of compliance, industry-wide

While a company’s culture may be intangible, there is no doubt it can be one of the most powerful determinants of a firm’s long-term success or failure. How to foster a winning corporate culture has been the subject of innumerable books, articles and motivational speeches.

The notion of building a strong culture across an entire industry is less widely understood, but is no less important to the ongoing health and success of the firms and individuals who make up a given market sector. With the engagement of a critical mass of industry players, it is certainly possible, as the Financial Services Institute (FSI) is seeing today.

With Finra emphasizing the centrality of independent financial services firms’ respective cultures as part of its 2016 examination and enforcement priorities, FSI is pleased to play a role in helping to further define and reinforce our industry’s strong existing culture of compliance. FSI is working to facilitate productive dialogue between our member firms and various other industry thought leaders on this crucial topic.

In webinars and discussion sessions at FSI events, our members have come together to take a fresh look at their organizations in light of the five key indicators of firm culture on which Finra will be focused going forward, namely:

1) Whether control functions are appropriately valued within their organizations;
2) Whether policy or control breaches are tolerated;
3) Whether the organization proactively seeks to identify risk and compliance events;
4) Whether immediate managers are effective role models of firm culture; and
5) Whether subcultures that may not conform to overall corporate culture are identified and addressed.

FSI member firms have long fostered internal corporate cultures that place each of these points at the top of their respective priority lists. The question some of our members encounter, though, is how to demonstrate an abstract concept — their commitment to putting customers first and operating with the highest ethical standards — in concrete terms.

Fortunately, independent broker-dealers and advisers have the best possible resource to turn to in order to answer these questions: their peers. Members of our industry may be fierce competitors in the marketplace, but they are highly collaborative when it comes to finding solutions to questions on compliance, operations, policy and many of the other elements that come together to form a company’s overall culture.

In the last several months, our members and partners have identified a number of recurring themes on this topic:

1) Be proactive in taking visible action. This includes being prepared with visible examples of compliance and disciplinary actions taken when Finra comes to conduct examinations. In particular, our law firm partners have pointed out that demonstrating examples of punishment for material breaches of policies and procedures is very important to Finra.

2) Demonstrate that customer protection is paramount. Firms can accomplish this by demonstrating solid investments in compliance and corporate governance — even if it may mean fewer dollars for investment in other parts of the organization. They can also show their commitment in this area by hiring strong chief compliance officers and ensuring that they are empowered to take necessary disciplinary actions when appropriate.

3) Allocate proper resources for compliance. Among the best practices discussed by our members in recent months in this area are to ensure that overall spending on compliance and staffing ratios for compliance personnel are on par with the rest of the industry. A solid and consistent commitment to teaching and training is also key.

4) Spread the message to OSJ and branch managers. Consistency is key in demonstrating a culture of compliance. In our members’ experience, this is best achieved by ensuring that material violations of policies and procedures are handled in the same manner across branches and regions, and — very importantly — that higher-producing branches or advisers are treated in the same way as lower-producing locations and representatives. Firms should also take care not to let rogue offices or subcultures persist within their broader organizations.

5) Mind the details. Although they may seem obvious, smaller details can sometimes trip up firms and advisers in their efforts to maintain a strong culture. This can include regularly assessing and updating compliance manuals, making seminars on a comprehensive range of compliance topics available throughout the organization, providing proper incentives to employees and managers to stay up to speed on compliance training, and ensuring adequate follow-up.

As firms and advisers across the FSI community continue to meet to brainstorm and share vital experiences in building and maintaining a culture of compliance, the collective wisdom of our industry is growing by leaps and bounds. We are pleased to play a central role in this process, and to assist our members in reinforcing this culture across the independent financial services sector.

Dale Brown is president and chief executive of the Financial Services Institute Inc.

Related Topics: Financial Services Institute Inc. (FSI)