Why FINRA compliance is crucial for securities firms

August 19, 2024

The Financial Industry Regulatory Authority (FINRA) enforces rules designed to protect investors from unethical practices and prevent financial losses.

According to Alessa, firms that overlook these regulations face serious repercussions, including substantial fines, legal challenges, and lasting damage to their reputation.

AML practices are vital in safeguarding the integrity of the global financial system, curbing crime, corruption, and terrorism. FINRA mandates that its member firms implement stringent AML programs. These programs must include thorough customer identification, continuous transaction monitoring, and immediate reporting of any suspicious activities.

Firms failing to fulfil their AML duties risk breaking FINRA regulations and could face criminal charges and regulatory actions from bodies like the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC).

FINRA’s membership comprises firms dealing in securities, a mandatory condition to operate within the industry. This includes broker-dealers and investment banking entities, alongside others like capital acquisition brokers and crowdfunding portals.

Among the many FINRA regulations, certain rules are particularly crucial for maintaining compliance. These include:

Rule 3310 – Establishing a comprehensive AML compliance program.
Rule 3110 – Setting up a supervisory system to ensure adherence to applicable laws.
Rule 2210 – Regulating public communications to prevent misleading information.
Rule 2090 – Mandating firms to gather critical financial details about their clients.
Rule 2111 – Ensuring that financial advice provided is suitable for the client’s situation.

To adhere to FINRA’s AML regulations, firms should conduct detailed risk assessments tailored to their specific business context, employ advanced customer due diligence procedures, and leverage technology for effective monitoring and reporting. Regular AML training for staff and collaboration with law enforcement and other stakeholders are also pivotal.

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