In its first Targeted Exam Letter this year, FINRA published “Establishing, Communicating and Implementing Cultural Values” to gather information on how firms have established and implemented strong cultural values, i.e., consistently putting “client interests at the center of business decisions” and “protect[ing] investors and the integrity of the markets.” The FINRA letter seeks eight categories of documents and information from firms such as key policies and processes firms use to establish cultural values; how firms assess those processes; how firms address breaches of cultural values; and determining how cultural values play a role in compensation and promotion criteria.
FINRA plans to review these categories of documents and expects to speak to firm leadership with the goal to better understand industry practices and to ascertain firms’ establishment and implementation of a culture of compliance. This information will likely be used in examinations and to respond to any identified issues.
Takeaway: FINRA’s Targeted Exam Letter underscores that firm culture is one of its top priorities as emphasized in its 2016 Regulatory and Examinations Priorities Letter dated January 5, 2016. Firms are expected to reinforce a “culture of compliance.” A firm’s “tone from the top” and leadership have a significant influence on employees’ perceptions of the import of a firm’s cultural values and how day-to-day business is conducted. We hope the end result from the review and meetings is concrete guidance on FINRA’s expectations of criteria for policies and processes, how firms should assess the success of such processes, and metrics for advancement of those that prioritize and promote the firm’s cultural values.