FINRA Asks Members to Submit Information on "Firm Culture"
Commentary by Steven Lofchie
FINRA asked member firms to submit information concerning their respective "cultures" in order to review how firms "establish, communicate and implement cultural values, and whether cultural values are guiding business conduct." In a targeted exam letter, FINRA stated that it plans to meet with each firm to discuss cultural values, and to focus on how each firm (i) "communicates and reinforces those values directly, implicitly and through its reward system," (ii) measures compliance with its cultural values, particularly if it employs metrics, and (iii) "monitors for implementation and consistent application of those values throughout the organization." FINRA noted that fines and litigation costs to firms related to "cultural failures" exceed, by some estimates, $300 billion since 2010.
FINRA requested that each firm submit the following information about its cultural values:
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a summary of the key policies and processes by which a firm establishes cultural values;
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a description of the processes employed by executive management, business unit leaders and control functions in establishing, communicating and implementing cultural values;
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a description of how a firm assesses and measures the impact of cultural values (to the extent assessments and measures exist) and whether they have made a difference in achieving desired behaviors;
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a summary of the processes used by a firm "to identify policy breaches, including the types of reports or other documents a firm relies on, in determining whether a breach of its cultural values has occurred";
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a description of how a firm addresses cultural value policy or process breaches once the breaches are discovered;
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a description of firm policies and processes, if any, to identify and address subcultures within a firm that may depart from or undermine the cultural values articulated by its board and senior management;
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a description of firm compensation practices and how they reinforce cultural values; and
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a description of the cultural value criteria used to determine promotions, compensation or other rewards.
Firms must submit their answers to FINRA by March 21, 2016.
Commentary
The suggestion that the "culture" of some firms may be flawed or even inferior to that of others is an instance of microaggression that seems remarkably blatant. That FINRA would deliver such a twinge-making tenet in an examination letter without first providing a trigger warning, or at least allowing firms to opt out, demonstrates that the SRO culture remains paternal and hierarchical.
Firms should make clear to FINRA that (i) they do not encourage the wearing of white after Labor Day (notwithstanding views to the contrary in the popular press) and (ii) they have adopted procedures to prevent the breaking of the law. See Mose Allison's statement on required cultural values.