Securities Regulatory Examinations for Broker-Dealers

Sylvia Scott, Attorney pic
Sylvia Scott, Attorney
Image: ffslaw.com

A Los Angeles Super Lawyer, attorney Sylvia Scott earned her juris doctor from the University of California Los Angeles, School of Law. As the head of the Securities Regulation Practice Group at Freeman, Freeman, and Smiley, LLP, attorney Sylvia Scott is experienced with regulatory examinations.

Regulatory examinations are a common occurrence within the broker-dealer community. The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) conduct various examinations to evaluate regulatory compliance. These include cycle/routine examinations, sweep examinations, and cause examinations.

Cycle examinations are carried out by both FINRA and the SEC. They are conducted in a cyclical basis to identify the firm’s legal and regulatory compliance. The examinations, which form the bulk of broker-dealer examinations, are done using a risk-based approach.

Sweep examinations are done on a sample of firms. They focus on a specific area of business, such as sale of private placements, then evaluate how the selected firms deal with that specific area.

Cause examinations are carried out in situations in which the regulator believes there may be violations from a firm. Cause examinations can arise from customer complaints, tips, or press articles.

Cooperating with the FINRA and SEC Examiners

Financial Industry Regulatory Authority pic
Financial Industry Regulatory Authority
Image: finra.org

A Los Angeles attorney, Sylvia Scott earned her juris doctor from the University of California Los Angeles, School of Law. A partner at Freeman, Freeman, and Smiley, LLP, Sylvia Scott is an attorney representing brokers and financial advisors.

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) carry out routine examinations to investigate regulatory compliance within the companies under their jurisdiction. For securities brokers, therefore, regulatory examinations are not a rare occurrence, but rather occur at regular intervals.

Cooperating with the regulator’s examiner during these examinations is important. Some of the ways the firm can do this is by:

1) Designating a point person
This is a principal at the firm who will be directly responsible for interfacing with the examiner. For much larger firms, an entire department may be tasked with liaising with the examiner to facilitate a smooth examination.

2) Common courtesies
These include providing the examiner with adequate work space to conduct the examination. In the course of interaction, all employees of the firm should be responsive and courteous.

3) Maintain good communication
Do not lie to the regulators. Address any previous miscommunication, making sure to correct any issues that arise afterwards. Do not give the impression that you are out to frustrate or delay the examination.

Tips for Giving a Speech in a Professional Setting

Giving a Speech pic
Giving a Speech
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Sylvia Scott is a Los Angeles-based attorney with over 30 years of experience in the legal sector. Apart from her work as a lawyer and partner with Freeman, Freeman & Smiley, LLP, attorney Sylvia Scott has given speeches on topics related to the securities industry at several professional conferences in the past.

Giving a speech to a large audience in a professional setting can seem like a difficult task, but a few tips can help make the process much easier and more enjoyable for your audience. For example, if you find yourself nervous beforehand, take the opportunity to walk through the room and make brief conversation with a few audience members. Familiarizing yourself with a handful of faces in the crowd may help you feel more comfortable looking out and making eye contact with the group as you speak.

At the beginning of your speech, establish a strong, confident stage presence to set the tone for your presentation. Making your way to the heart of the subject matter as soon as possible will keep audience members engaged. Similarly, try to remain cognizant of how fast you are speaking and try to rely on note cards and other written material as little as possible.

A strong conclusion to your speech will leave a lingering impression. Depending on the subject of your address, consider closing with a statement that uses contrast, rhetorical questions, or a call to action to drive your point home.

American Bar Association Membership

American Bar Association pic
American Bar Association
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A designated Super Lawyer for each of the last three years, Sylvia Scott serves as an attorney and partner at Los Angeles-based firm Freeman, Freeman & Smiley, LLP. In her career as an attorney, Sylvia Scott has focused on the areas of business, employment, and securities industry litigation. She has been a featured speaker at conferences sponsored by the American Bar Association (ABA)and Practicing Law Institute.

Supervisory Examinations – A Look into Procedures and Typing

Financial Industry Regulatory Authority pic
Financial Industry Regulatory Authority
Image: finra.org

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.

FINRA Qualification Exams

Finance Industry Regulatory Authority (FINRA) Image: finra.org
Finance Industry Regulatory Authority (FINRA)
Image: finra.org

 

A current partner and a three-time Super Lawyer at Freeman, Freeman and Smiley, LLP and with past experience as a faculty member for the National Association of Compliance Professionals, Sylvia Scott is an accomplished expert attorney specializing in securities compliance and litigation. In addition to speaking engagements at industry conferences, Sylvia Scott has previous experience at FINRA and the SEC with a concentration on compliance and enforcement litigation. Ms. Scott also has extensive experience with broker/dealer regulatory examinations and has been a featured speaker on numerous occassions.

The Finance Industry Regulatory Authority (FINRA), maintains a number of qualification examinations that securities professionals must take and pass prior to working in the industry. Each exam is focused on a specific securities activity; however, the exams as a whole cover the broad market and general regulatory requirements.

Exams vary based on the specific certification being sought. For example, the General Securities Representative Examination tests for competency as an entry level general securities representative. Visit www.finra.org/industry/qualification-exams for a full list of examinations.

FINRA Regulatory and Examinations Priorities Letter

Financial Industry Regulatory Authority, Inc. (FINRA) Image: finra.org
Financial Industry Regulatory Authority, Inc. (FINRA)
Image: finra.org

A partner at Freeman, Freeman & Smiley, LLP, in Los Angeles, attorney Sylvia Scott leads the firm’s Securities Regulation Practice Group. A lawyer with tremendous exposure to matters involving securities regulatory compliance, Sylvia Scott’s focus as an attorney is on helping clients abide by the regulations of the Financial Industry Regulatory Authority, Inc. (FINRA).

FINRA issues the Regulatory and Examination Priorities Letter (the “Letter”) annually to serve as a guide for brokers and dealers on the regulatory concerns it will focus its examinations on that year.

Firms should use the Letter in applying changes to their business model, so as to be prepared in case of regulatory examinations. If the Letter has earmarked due diligence and long-term stability, a firm engaged in private placements should review its operations to strengthen controls in these areas.

With regard to large firms with multiple departments, the Letter should be circulated to the various departments. Afterwards, a meeting between the executive council and department representatives should be held to discuss the extent to which the Letter extends to the risky segments of each department and how they can remedy that. The modifications should be considerate and timely.

For smaller firms, similar measures should be taken, even if they have a much smaller size or fewer departments.