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5/3/16 - Responding to FINRA's Focus on Cultural Values

The Financial Industry Regulatory Authority in its 2016 Regulatory and Examination Priorities Letter identified “firm culture” — i.e., “the set of explicit and implicit norms, practices, and expected behaviors that influence how firm executives, supervisors, and employees make and implement decisions in the course of conducting a firm’s business” — as a top priority.

In February, FINRA made good on its promise to focus on firm culture by issuing a targeted exam letter requesting information on topics including:

  • Policies and processes for establishing cultural values
  • Assessments and measures for evaluating the impact of cultural values
  • Culture-related criteria used in determining compensation and promotions
  • Policies and processes for identifying and addressing subcultures that are inconsistent with the values sought by senior management and the board

Assessing Cultural Values

Describing a firm’s culture is no easy task. The topic is of critical importance to any firm’s success — both in conducting business and complying with regulatory requirements and expectations. While discussions about cultural values can become vague quickly, there are concrete steps firms can and should take to define the culture they want, understand the culture they have, and, if necessary, bridge the gap between the two.

For many, the first step is to better understand the firm’s existing culture. An anonymous employee survey can provide management with valuable information about employee perceptions and incentives. Analyzing results along various demographic lines — e.g., location, seniority level, department, function, etc. — can highlight trouble spots, reveal trends, and provide a much-needed focus for efforts to improve firm culture.

Armed with this information, firms can re-examine their policies and procedures — both formal and informal — and make any necessary adjustments. Some specific areas firms may want to assess include:

  • Compensation and promotion policies and practices
  • Firm communications
  • Escalation policies and procedures
  • Whistleblower and anti-retaliation policies
  • Training programs
  • Hiring and onboarding practices

Firms generally appreciate the importance of a strong compliance culture that incentivizes employees to “do the right thing” for the firm and its clients. The difficulty lies in the implementation — i.e., embedding the firm’s values throughout a large organization with a diverse group of employees serving in a wide range of roles.

How Promontory Can Help

Promontory helps broker-dealers and other financial institutions meet their most difficult compliance challenges. Please contact a member of our securities practice to discuss how your firm can prepare for FINRA’s increasing focus on firm culture.

Contact Us

Conway Dodge
Managing Director
+1 202 370 0461

Michael Sullivan
Managing Director
+1 202 370 0507

Jacob Lesser
+1 202 370 0397