The Financial Industry Regulatory Authority is requesting firms to submit information regarding their organizational culture and how those values impact business decisions. FINRA’s 2016 Regulatory and Examination Priorities Letter defined “firm culture” as “the set of explicit and implicit norms, practices and expected behaviors that influence how employees make and carry out decisions in the course of conducting the firm’s business.” FINRA believes that a broker-dealer’s view of firm culture” influences how the firm conducts its business and manages conflicts of interest. For example, FINRA notes that firms have encountered $300 billion in fines and litigation costs related to cultural failures since 2010.
FINRA intends to meet with firms and review how they establish, communicate and implement cultural values within their organizations. In preparation for these meetings, FINRA has requested that each firm submit the following information by March 21: (1) a summary of key policies and processes by which the firm establishes cultural values; (2) a description of the processes employed by firm management in establishing, communicating and implementing cultural values; (3) a description of how the firm assesses and measures the impact of cultural values; (4) a summary of the processes used to identify policy breaches; (5) a description of how the firm addresses breaches of policies and processes once discovered; (6) a description of the firm’s policies and procedures for identifying and addressing subcultures that run counter to the firm’s culture; (7) a description of how compensation practices reinforce the firm’s cultural values; and (8) a description of how cultural values are used to determine compensation, promotions or other rewards.
FINRA notes that firms should not view these inquiries as an indication that they are violating any rules or regulations. Rather, FINRA intends to use the information to better understand industry practices and develop future guidance.
A discussion of the requested compliance materials is available here.
