Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, October 27, 2011

SEC Orders FINRA to Improve Internal Compliance Procedures

The SEC ordered FINRA to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections.  The SEC found that certain documents requested by the SEC’s Chicago Regional Office during a 2008 inspection were altered just hours before FINRA’s Kansas City District Office provided them. According to the SEC’s order, the production of the altered documents by the Kansas City District Office was the third instance during an eight-year period in which an employee of FINRA or its predecessor (National Association of Securities Dealers) provided altered or misleading documents to the SEC.

FINRA has consented to engage an independent consultant within 30 days that will:

  • Conduct a one-time comprehensive review of FINRA’s policies and procedures and training relating to document integrity.
  • Assess whether the policies and procedures and training are reasonably designed and implemented to ensure the integrity of documents provided to the SEC.
  • Make recommendations for the enhancement of FINRA’s policies and procedures and training as may be necessary in light of the consultant’s review and assessment.

The Financial Industry Regulatory Authority (FINRA) today issued the following statement from Richard Ketchum, FINRA Chairman and Chief Executive Officer:

"As a regulator, FINRA must always hold itself to the highest standards. When we discover shortcomings, it is our obligation to take appropriate corrective action and make it clear that we have zero tolerance for actions that could compromise the integrity of our organization. We self-reported the Kansas City matter to the SEC and have fully cooperated with the agency's review. Following our own internal review we took decisive action, including appointing new leadership in our Kansas City office and instituting a number of changes that strengthened document-handling procedures across the organization. These strengthened procedures include additional online and live ethics training for all employees with an enhanced focus on document handling and integrity. An independent consultant will review these changes to determine if further improvements are warranted.

I am personally committed to taking all possible steps to ensure that this type of conduct does not reoccur. We have taken prompt action to report, investigate and discipline the behavior at issue in this matter. Under no circumstances will such conduct be tolerated at FINRA."

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