Given Finra’s recent pronouncements regarding REG BI and the difficulty expunging fines from records, it may be a good time to review your risks and procedures. Below are the greatest risks to Broker Dealers that may result in fines and/or disciplinary action.
Broker-dealers face a variety of regulatory risks, but some of the biggest ones include:
- Compliance with Anti-Money Laundering (AML) regulations: Broker-dealers are required to comply with various AML regulations, including the Bank Secrecy Act (BSA) and the USA PATRIOT Act. Failure to comply with these regulations can result in significant fines and reputational damage.
- Insider trading and market manipulation: Broker-dealers are subject to strict regulations around insider trading and market manipulation. Violations of these regulations can result in significant fines, imprisonment, and loss of reputation.
- Cybersecurity and data privacy: With the increasing use of technology in the financial industry, broker-dealers are increasingly vulnerable to cyber-attacks and data breaches. Failure to adequately protect customer data can result in significant fines and reputational damage.
- Best execution: Broker-dealers are required to provide their clients with best execution, which means executing trades at the most favorable terms reasonably available under the circumstances. Failure to provide best execution can result in significant fines and reputational damage.
- Customer protection: Broker-dealers are required to act in the best interests of their clients and to ensure that their clients’ funds and securities are protected. Failure to protect customer assets can result in significant fines and reputational damage.
Overall, broker-dealers must comply with a complex set of regulations, and failure to do so can result in significant legal and financial consequences.
Make sure you use an auditor with the level of experience needed to be aware of all risks. Please contact us if you are in need of a compliance review. We can point you in the right direction.