Playing Devil’s Advocate to Pass Cycle Examinations
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Sylvia M. Scott is a partner at Freeman, Freeman & Smiley, LLP who handles cases and prepares clients for risk-based regulatory examinations based on her experience at the SEC and FINRA. FINRA conducts routine examinations of broker-dealers using a risk-based approach that increases the likelihood of corrective action. To avoid penalties, firms should analyze weak areas and risky practices like employing part-time or overloaded compliance officers. Firms should also ensure their compliance officer is available as needed and that operations expand with adequate additional staff and technology to support growth without compromising compliance.
Playing Devil’s Advocate to Pass Cycle Examinations
- 2. Having achieved the recognition of Super Lawyers for three consecutive years, Sylvia M. Scott handles cases at Freeman, Freeman & Smiley, LLP, where she leads as a partner. A former enforcement assistant director at the Securities and Exchange Commission and senior enforcement counsel at the National Association of Securities Dealer, now known as the Financial Industry Regulatory Authority (FINRA), Sylvia M. Scott prepares clients for risk-based regulatory examinations. To ensure compliance by all broker-dealers, FINRA conducts sweep and cycle, or routine, examinations.
- 3. In the past, the latter observed no regulatory risk areas, but over time, routine examinations have been updated to use a risk-based approach, increasing the likelihood that firms and registered personnel will be subjected to corrective action. Taking a proactive approach to avoid penalties, such as a lawsuit, a firm should always take notice of weak areas within their operations and staffing. Leaders of the company must use a “devil’s advocate” approach to analyze what concerns may arise from employing part-time compliance officers and those who are tasked with multiple responsibilities. These individuals often raise a flag for FINRA because they are deemed risky.
- 4. A firm should ensure their compliance officer remains available to answer questions as needed, to avoid suspicion of illicit acts. The same applies when a firm expands its business operations. FINRA seeks evidence that a company has the ability to support its growing team and workload, without negatively impacting compliance. This includes employing more staff in operations and risk management as well as integrating technology that can withstand additional tasks.