The Financial Industry Regulatory Authority (FINRA) is a non-profit regulatory organization in which individuals in the financial industry take up membership. FINRA operates as requested with the U.S. Securities and Exchange Commission (SEC) and has the authority to impose penalties, including fines for various ethics and regulatory violations.
Registered investment advisors (RIAs) must submit an annual filing, which is done using Form ADV. FINRA regulations dictate that wealth management advisors must complete a different annual filing using SEC Form X-17 A-5 Part III.
Even though FINRA doesn’t audit or regulate work done by RIAs, there are some instances in which individuals in an office that employees RIAs serve two different roles, as with a broker-dealer. You may find it helpful to learn more about annual audits if this describes the dynamics in your office.
What does a FINRA audit examine?
One of the primary focuses of a FINRA audit is on accounting as it relates to different transactions. Auditors aim to uncover answers to the following questions when carrying out their audit, including:
- How much the broker-dealer or firm brought in, and how much it sent out.
- Where the investment funds originated from and what their destination was.
- If the broker-dealer engaged in any theft.
- How accurate advertising efforts were.
- Whether the broker-dealer and office personnel met their continuing education requirements.
- How suitable client investment recommendations were.
FINRA regulators may also schedule random examinations, which they also refer to as audits, as they deem appropriate. All of this helps auditors determine if the broker-dealer maintained accurate records and complied with existing FINRA regulations.
What you should know if you’re facing a FINRA audit
Like any regulatory or government agency, their compliance requirements are ever-evolving. The best step that you can take if you’re facing an audit is to research what to expect. You may want to consult with a professional who stays updated on these regulations and has experience walking others through what to expect if you’re facing an audit.