Freeman, Freeman, and Smiley, LLP, partnering attorney Sylvia Scott has over 25 years of legal experience. She represents clients in cases involving all aspects of securities regulation and litigation. Attorney Sylvia Scott also defends clients against grievances filed by the Financial Industry Regulatory Authority (FINRA). She has authored numerous articles utilizing her knowledge of the organization. Previous article topics include supervisor liability and supervisory examinations.
Investigations by FINRA and the Securities and Exchange Commission often include supervisory examinations. In the event that an examination takes place, it is beneficial for supervisors to understand the investigation process. Examinations focus on evaluating the firm’s written supervisory and compliance procedures (WSP). Supervision cases tend to fall into one or more of three categories: implementation of inadequate procedures, failure to implement or follow existing procedures, and failure to respond to red flags warning signals of potential violations.
Differing variables from company to company require examiners to approach each case with a fresh perspective. Examinations generally begin with an evaluation of the company’s WSPs and a review of any related documents, reports, or outside business questionnaires. This evaluation determines the WSP’s adequacy in addressing a given prohibition or requirement. A number of factors affect the examiner’s final decision including the firm’s size, nature of business, and organizational structure.
Following evaluation, the examiners will compare the company’s implementation procedures and compliance history to its individual WSPs. They will also assess the supervisor’s track record in responding to WSP violations and red flags. Examiners base their final decisions on the answers to a series of questions posed throughout the examination process that address the reasonability of existing WSPs, steps taken to implement them, and actions taken against alleged misconduct.