Small Broker Dealers Part 2: The Impact of Dodd Frank and Tips from CCOs Who Know
To keep up with increased regulatory obligations and oversight, small firm CCOs shared their thoughts, experiences, and insights from the front line. To follow are some tips for CCOs at small firms on how to maintain a compliance program with limited resources. For these purposes, a small Firm is defined as a firm with fewer than 50 Reps with maybe more than one branch.
For small firm’s it’s incredibly important for CCO’s and compliance departments to leverage their limited resources to be effective, particularly, to tackle the dichotomy of staff cuts in the face of greater regulatory oversight.
Cross-Training can be a great way for small firms with limited compliance staff to leverage additional internal resources by deputizing administrative and operational staff to assist with compliance issues. If internal resources are too lean to accommodate cross-departmental responsibilities, outsourcing compliance administrative, operational, and consulting functions can be more cost effective than hiring additional personnel and can provide support on a project basis where needed.
Outsourcing can provide efficiency and cost-savings, but does not remove supervisory risk. Your CCO maintains supervisory responsibility as do the individuals at the firm for their reporting and documentation responsibilities.
For small firm CCOs, remaining educated on the latest regulatory developments and implementation tips from other small firms is an invaluable resource. By attending industry educational events and working with regulatory consultants, small firm CCOs can grow their general knowledge base and have a resource to call for specific questions on how other companies within the consulting firm’s client base have addressed specific regulations or areas of particular concern during exams.
FINRA, additionally, provides a number of resources for small firms such as the:
o FINRA Rule Conversion Charts
When vetting new products the firm must conduct 2 levels of Suitability Analysis – suitability on “Reasonable-basis” and “Customer-Specific” basis. The initial approval for new product offerings should be both a business and compliance decision. The CCO / Compliance team need(s) to understand products to make sure sales knows what they’re selling and to put in the breaks and controls to make sure it’s done right – that brokers have adequate knowledge on products and there is some type of surveillance. The decision as to whether or not to offer the product is not up to compliance. The continued review of products is also an important factor in product offerings. Has your firm revisited a new product 6 months later? Are you paying attention to market conditions down the road with surveillance? Have you documented it?
For better risk management of your compliance program, the firm should develop risk-based policies and procedures that are conformed to the firm’s actual business and specifies who is responsible for specific tasks, who verifies or reviews that it has been done, and who approves it. To do so, identify firm risks, form a policy on those risks, be able to monitor it, and communicate it to the company through training and surveillance. By conducting the required 3012 Supervisory Controls review, the firm verifies a connection between what policies and procedures say and what is being done. The WSPs are a road map for understanding and reviewing the compliance program. If it says it in the WSPs it should be there if an examiner asks for it.
