FINRA Examination and Risk Monitoring Programs

As part of our mission to protect investors and safeguard market integrity, FINRA monitors and assesses FINRA-registered firms and their registered representatives through our Examination and Risk Monitoring programs.

How We Do our Work

Our Exam and Risk Monitoring programs are a critical component of FINRA’s regulatory operations and one of the primary means by which we oversee the activities of our member firms. We take a risk-based approach to our oversight, with the goal of detecting, deterring, or addressing activities that may cause investor harm or adversely impact the integrity of our markets.

We classify each member firm by primary business model into one of five Firm Groups: Capital Markets, Carrying and Clearing, Retail, Trading and Execution, and Diversified. From there, we further sort firms into various subgroups. Each of these groups has teams of Exam and Risk Monitoring staff dedicated to it.

This approach enables us to assign staff to examine and monitor firms based on their subject matter expertise and allows the teams to share information and spot trends across Firm Groups, further enabling FINRA to identify and mitigate potential issues more efficiently. By framing our programs in this way, our staff develops deep expertise in the operations and risks affiliated with the business model to which they are assigned.

At the same time, we have processes in place to achieve a consistent approach within the Exam and Risk Monitoring programs when consistency is appropriate and warranted. Additionally, our Quality Assurance team conducts reviews to assess quality and consistency in execution, and to identify opportunities to improve the efficiency and effectiveness of our programs.

Examinations

Depending on the type of firm and our assessment of the risk and impact a firm poses to investors or the markets, we generally examine firms on a one, two or four-year frequency; at a minimum, every firm is examined at least once every four years. These “Firm” exams are the foundation of our oversight program and ensure that we examine firms for compliance with FINRA rules, federal securities laws and regulations, and, when applicable, exchanges’ rules, on a regular basis. The Firm exam teams may include specialist teams—such as anti-money laundering, cybersecurity or fixed income—when warranted, based on the particular risks associated with a firm or its business model.

Beyond scheduled Firm exams, FINRA can initiate what are known as “Cause” exams based on customer complaints, regulatory tips or calls into FINRA’s Securities Helpline for Seniors. These exams focus on specific issues at a firm or with specific registered representatives, with the intent to investigate and resolve concerns or problematic conduct as quickly as possible. This could be through firm-driven changes to their controls, supervisory oversight or compliance program, through the firm’s termination or discipline of the involved employee(s), or through FINRA-imposed sanctions.

If an exam—either Firm or Cause—identifies significant deficiencies, fraud or issues that are clear violations of FINRA or federal securities rules, the matter will be referred promptly to FINRA’s Enforcement Department, other regulators and/or law enforcement agencies. For more on how FINRA’s enforcement process works, visit the Enforcement page.

Risk Monitoring

FINRA’s Risk Monitoring teams learns about and work to understand the unique aspects of each firm they monitor. They apply that knowledge when they help inform exam staff preparing for Firm or cause exams with insights into the firm’s existing operations, as well in their overall monitoring of the firms.

The team engages with member firms on an ongoing basis to understand industry and Firm Group trends, to evaluate the impact to firms from market or financial events, and to monitor the firms for compliance with specific obligations. Risk Monitoring staff also serve as the day-to-day contact for firms for questions or issues.

Each Firm Group is assigned a Risk Monitoring Director (RMD) who has ultimate responsibility for the risk monitoring activities within that group, for partnering with examination leadership to determine which firms will be examined each year, and for assessing and addressing issues escalated by staff and/or member firms.

Key Resources

• 2023 Report on FINRA’s Examination and Risk Monitoring Program
• 2022 Report on FINRA’s Examination and Risk Monitoring Program
• Podcasts:
  • 2023’s Must Read | Report on FINRA’s Examination and Risk Monitoring Program
  • Augmenting the Exam and Risk Monitoring Program with Data Analytics and Technology
  • Introducing Greg Ruppert and the National Cause and Financial Crimes Detection Programs