Are you prepared for the regulatory scrutiny surrounding the use of consolidated reports?
For many years, the financial industry has been actively engaging in the use of consolidated reports for their clients and customers. While these solutions are a great way to summarize a client’s complete investment profile, there are also risks associated with this reporting that creates challenges around adequate supervision when:
- The organization doesn't have WSPs which create rules around the use of consolidated reports
- The organization doesn't permit registered representatives to provide consolidated reports to clients, but fail to verify that their registered representatives are adhering to the policy
- The organization allows registered representatives to produce the information using a variety of sources including:
- Phone Calls to other institutions
- Data provided on excel spreadsheets
- Duplicate statements that the client provides to the RR or Broker-Dealer
- Other ad-hoc communications
- Firms who have representatives self-producing consolidated reports have an increased risk due and regulatory scrutiny due to:
- The opportunity for honest human keystroke errors
- The opportunity to falsify the valuations of the assets
- The opportunity that the reports lack the necessary disclosures
The Fines are Real
In just the past two years, nearly $2 Million in fines have been handed to high profile broker-dealers:
- Wednesday, March 12, 2014, FINRA announced they fined two firms in the amounts of $650,000 and $625,000 around consolidated reporting due to lack of supervision, inaccurate valuations and record keeping
- Monday, March 30th, 2015, FINRA announced that they sanctioned three firms with fines of $425,000, $175,000 and $100,000 related to inadequate supervision around consolidated reporting
Who's At Risk?
- Experience growth through acquisitions
- Lack resources to control the manner in which third party records are delivered
- Allow their registered representatives to create their own consolidated reports
- Don't have documentation that supports their internal review and controls surrounding the supervision of these reports
NRS Can Help
If your firm is anticipating being examined by FINRA in the near future, you can expect to be asked questions around your firm’s use of consolidated reporting. If your firm supplies clients with this type of reporting be prepared to provide documentation as to the policies and procedures you have in tact surrounding the supervision of these reports. If you aren't prepared or feel like you may want to improve your process, we can help you:
Redesign your Written Supervisory Procedures - NRS Consultants will work with you to understand your firm, current processes and goals to design scalable and sustainable procedures for your organization
Train your sales force - Sometimes the message is better received when delivered by a third party. NRS Consultants can work with your team to design and deliver training to your sales force to maximize understanding and successful adherence to company policies.
Automate your supervisory processes - The NRS ComplianceMAX™ platform provides a robust framework for you to automate your supervisory processes from the Advertising Review & Public Communications starting point to Branch Inspection Supervision.
Let the compliance experts help you ensure your compliance program is ready to withstand heightened scrutiny from clients and regulators. Schedule a Consultation today.