FinOp FAQ Update + CAT Monthly Report Card (9/18/20)

Important Small Firm Update on Off-Site FinOps

Your Small Firm Board of Governors and the Small Firm Advisory Committee raised the issue of small firms being written up in their FINRA's Member Supervision examinations for a "Rule violation" centered on the fact that their off site FinOps had not conducted an on-site visit, at a minimum of once a year, if not more as deemed appropriate by whichever examiner your firm was assigned. These write-ups of Rule "violations" were troubling to us because there is no FINRA Rule that states an on-site FinOp visit is required.

Further, and somewhat unbelievably because this was never a rule-based requirement, some small firms were instructed by FINRA staff to write this "requirement" into their WSP's. (If you did, you may want to revisit that topic with your coordinator. That requirement may be appropriate for your firm, based on facts and circumstances. Then, again, it may not.)

FINRA executive staff listened to our concerns, researched the issue, and determined that it was appropriate to issue an FAQ on this topic:

FAQ #9

9. I am registered as a Financial and Operations Principal (FINOP) for several firms and conduct my work off-site. Do I need to conduct an on-site inspection of the firms’ books and records as part of fulfilling my FINOP obligations? New

All FINOPs, regardless of whether they work part-time, work off site or hold multiple registrations are responsible for fulfilling the duties outlined in FINRA Rule 1220(a)(4)(A). FINRA has previously provided guidance to member firms to help them assist their FINOPs in fulfilling the obligations specified in Rule 1220(a)(4)(A). See Notice to Members 06-23 (May 2006). The guidance, which includes a provision regarding on-site visits, should not be viewed as requirements (i.e., a FINOP is not required to conduct an on-site visit if the FINOP can fulfill his or her obligations through other means). A member firm’s written supervisory procedures, however, may impose additional requirements for FINOPs, such as an on-site visit to review a location’s books and records. In addition, nothing in this guidance relieves a firm from the obligation to conduct periodic office inspections in accordance with the requirements of Rule 3110(c).

Your Link to the FINRA FAQ:

FinOp On-site Inspection Clarification FAQ (click here)

Small Firm CAT Compliance Note

The August 2020 CAT Industry Member Compliance Report Cards have been published. This is the second report card they have published. Be sure someone on your compliance or operational team is accessing the CAT Reporter Portal (see below), pulling the monthly report card, exporting the report card, reviewing and evidencing the review of your performance, and filing it away as part of your compliance books & records.

Tip: once you have logged in, at the top/center of your screen there is a field labeled "Perspective". It will default to Reporter, but every time you access the site you want to change that to ALL, then run your searches and export the files you want to review and save (to evidence your review be sure to sign/date the doc).

Tip: I export the monthly report card in Excel, review, type in any notes, the date and who has reviewed the document. I then save it in PDF format. I also access the "Reporting Feedback/Event Type Counts" tab, run a random and intermittent processing report, export this report, and evidence my review the same way I do with the monthly report card.

Tip: Finally, I created a tracking worksheet as sort of a low-brow dashboard. I have one for our monthly report cards and another for the intermittent weekly Event Type Counts reviews (don't lock yourself into having to review this every single day in your procedures, if you miss a day that's where the examiners will get you -- I actually titled my reports "intermittent weekly reviews").

This is as far as I have gotten with CAT compliance reviews. If you have added anything else to your reviews that you think would be helpful, I always welcome good ideas and support. It takes a village these days! Thanks!

Your Link to the Consolidated Audit Trail (CAT) Website:

FINRA CAT Website (once there, click on "CAT Reporter Portal" in yellow)

We continue to work on many areas of concern for small firms, such as:

• PCAOB exemption for small non-custodial, privately held brokers and dealers

• Remote Branch Inspections

• Fingerprinting

• Loss of industry licensing following 2-years of not being registered with a Member firm

• Extending the 60-day FYE audit deadline to 90-days

• Modernization the Safe Harbor for Business Expansion to address remote office scenarios

• Updating of the definition of "Immediate Family"

• and so much more!

I hope this information is useful and, as always, please feel free to reach out if I can be of assistance.

And remember - if you're "done" and don't want to own/operate your own BD or IA anymore (but still want to work in the industry) or if you are ready to retire, please do not sell or BDW without calling me first! Thanks!

Stay safe. Stay strong. Stay in touch.

All the best,

Paige

Paige W. Pierce

President & CCO

McLaughlin Ryder Investments, Inc.

(801) 949-5577

ppierce@mclaughlinryder.com

paige@paige-pierce.com