Sylvia Scott is an attorney with the Los Angeles-based corporate law firm Freeman, Freeman and Smiley, LLP, and leads the Securities Practice Group. Attorney Sylvia Scott emphasizes the importance of businesses large and small taking a proactive role in evaluating their internal compliance functions, in ways that correspond with FINRA risk-based criterion for cycle exams.
Assessments can be complex and time consuming, with their true value only emerging when FINRA exams occur. That said, there are a number of “low hanging fruit” targets on which examiners will focus. This reflects a tendency on the part of FINRA investigators to focus on rule violations that are simple to identify and easy to prove.
Easily remediable violations include creating comprehensive and up-to-date written supervisory procedures. This involves the formalizing of practices that may already exist informally, particularly among small companies. Another aspect of this centers on Form U4s, which fully disclose recent activities such as creditor settlements and bankruptcies. It pays to carefully review U4 update requirements, as some aspects of reporting are counterintuitive. Finally, new account forms and applications should be properly filled out and update, as failure to do so is considered a significant regulatory breach.