An experienced attorney and regulatory specialist, Sylvia M. Scott is a former senior enforcement counsel with the Financial Industry Regulatory Authority (FINRA). Since joining law firm Freeman, Freeman & Smiley in 2005, Sylvia M. Scott has written a number of articles for professional compliance publications, including a piece on the supervisory investigation process.
During regular examinations, FINRA and the Securities Exchange Commission (SEC) assess a firm’s methods for employee supervision. There are three overarching areas that regulators may look at throughout their investigation. First, they will review a company’s written supervisory and compliance procedures (WSPs) to evaluate whether they are reasonable and meet all industry regulations. Regulators will next examine if staff members properly observed the firm’s WSPs and, if not, whether this directly caused a violation of regulations. Lastly, they will investigate a company’s reaction to the warning signs of an offense to determine whether it was sufficient or not.
After the investigation is complete, the regulator determines which employee is at fault for any supervisory deficiencies. Most often, firm managers or direct supervisors are held at fault for an employee’s misconduct, as they are the primary enforcers of all regulations. The term “supervisor” may, however, extend to any person who possesses influence over the liable employee.