NASAA Report: Coordinated Examinations Identify Top BD Compliance Violations; State Securities Regulators Offer Recommended Best Practices
Based on examinations of broker-dealers throughout the U.S., NASAA identified the top compliance violations, which included: failure to follow written supervisory policies and procedures, suitability, correspondence/e-mail, maintenance of customer account information, and internal audits.
NASAA further offered a series of recommended best practices for broker-dealers to consider in order to improve their compliance practices and procedures. Best practice recommendations covered the following areas:
- Suitability;
- Developing, Updating, and Enforcing Written Supervisory Procedures;
- Exception Reports;
- Branch Office Audits;
- Selling Away;
- Outside Business Activity;
- Advertisements;
- Correspondence;
- Customer Complaints;and
- Working with Seniors.
Lofchie Comment: Interestingly, one of the most common violations was a given firm's failure to follow its own procedures. This illustrates the point that there is too often a disconnect between the writing and the implementation of procedures. To put it bluntly, it is much better to have A- procedures and follow them with A+ strictness than it is to have A+ procedures and follow them with A- strictness.
The report also provides a good deal of statistical information as to the other types of violations that NASAA found to be most common. I do wonder how much consistency there is in examination procedures across state lines. Statistics may not be that mathematically significant, but they are still likely to provide useful guidance in thinking about where to review or step up compliance procedures.
View report here(links externally to NASAA website).