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FINRA Now Playing Culture Cop

FINRA Now Playing Culture Cop

Getting your culture to take root within the entire firm, in all functions and in all areas of business, takes time and a consistent approach.

Most of us know that culture is a topic that is regularly discussed in the C-suites of many companies. Rightly so, if you want to build a firm that is successful in recruiting, retaining employees and servicing clients’ financial needs. The tricky thing about culture is this: We all want a good one, but how do you quantify it? Can you create it? And, more importantly, can it be audited? 

FINRA believes all of the above are possible, and the organization has recently launched a target examination of over a dozen broker/dealers to do just that—a fairly audacious attempt by most standards. The information request, released on the regulatory side of the FINRA website, asks for eight pieces of information and provides a specific definition of culture to set the stage for the exam: “...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.” 

Compliance culture has been an area of concern in FINRA’s Annual Exam Priorities for years, not to mention any speech given by FINRA boss Richard Ketchum in the years since we learned that banks weren’t too big to fail, after all. Culture, and therefore compliance, must come from the top down. The regulators are aware that no number of draconian rules written by lawyers in Washington can ensure that representatives do good work for their clients like a firm’s intolerance of unethical behavior. In short, if firms did not put up with questionable business practices or mendacious representatives, there would be none.

The questions asked in this target exam are a window into FINRA’s expectations on how firms must develop “cultural values,” which the savvy will read as “compliance culture.” Below are the eight items of information FINRA is requesting in the exam and the compliance interpretation of each request.


A summary of the key policies and processes by which the firm establishes cultural values.

FINRA is not looking for your written supervisory procedures, but how your firm sets the framework for addressing rules, risk management and values. Has your executive management or your board of directors published specific values or principles that employees and supervisors can incorporate into your firm’s day-to-day policies and procedures? If there are a set of written core values that everyone in the firm can rely on, corporate direction and decisions should be consistent and predictable.

A description of the processes employed by executive management, business unit leaders and control functions in establishing, communicating and implementing your firm’s cultural values.

Does your CEO publicly require a standard ethical approach of business managers, or is your CCO developing policy and struggling to have units within the firm maintain adherence to it? Is the boardroom invested in developing principles that representatives and employees need to conform to, or is leadership only interested in the expansion of revenue projections? The most important takeaway of this item is that FINRA wants to see the boardroom and C-suite leading by example in living the corporate culture so that the importance of culture is seen and felt by everyone in the firm. Anything less cheapens the message.

A description of how your firm assesses and measures the impact of cultural values (to the extent assessments and measures exist) and whether they have made a difference at your firm in achieving desired behaviors.

If you cannot measure something, it doesn’t exist. Culture needs to be assessed like any other metric. Is your culture helping your business? Hurting it? FINRA is looking for insight on how firms assess the business impact of their culture. The unasked question here is how committed is a firm to its ethical culture if the culture constricts income.


A summary of the processes your firm uses to identify policy breaches, including the types of reports or other documents your firm relies on in determining whether a breach of its cultural values has occurred.

This is not about policies and procedures. This is fair notice that regulators want firms to consistently test, analyze and address breaches of cultural values with every violation of written supervisory procedures.

A description of how your firm addresses cultural value policy or process breaches once discovered.

FINRA wants to know if firms will put their culture where their money is. When a rule is broken, you must now ask if your cultural values allow for clemency or a well-justified (and cathartic) termination. 

A description of your firm’s policies and processes, if any, to identify and address subcultures within the firm that may depart from or undermine the cultural values articulated by your board and senior management.

Subcultures? Ignoring the drama-laden undertones, this item provides an important structural question a firm must address in developing its compliance culture. How do you work with members of your organization who aren’t on board with the culture? A mentor of mine could put up with just about any foible from an employee, but when you undermined culture you undermined the entire firm, and that was a job-ending move. If you don’t address the cultural skeptics as you build, you will eventually address it when it inevitably embarrasses you.

A description of your firm’s compensation practices and how they reinforce your firm’s cultural values.

FINRA, and everyone reading this, knows that the way to get the results you want is through a compensation structure that provides incentives for appropriate behavior. This is a very transparent notice that when in doubt, compensation will drive culture.

A description of the cultural value criteria used to determine promotions, compensation or other rewards.

Cultural values are great, but useless unless people know they get ahead by adhering to them. Assess your firm’s compensation packages and see if every employee’s career trajectory is rewarded by adhering to the firm’s cultural values. If there is a “fast track” to success that rewards getting ahead at all costs but skimps on keeping to the culture, then your firm’s culture will never take root, as your employees will follow the path of the successful and rewarded employees.


Nurturing a culture you can be proud of, whatever form your firm’s specific culture takes, is difficult. Getting your culture to take root within the entire firm, in all functions and in all areas of business, takes time and a consistent approach. It is easy to question the rationality of an industry regulator auditing or examining such an ethereal, complex idea. The better approach is to see the gift that has been provided. These are eight simple questions that any board, executive team or owner can use to achieve the culture that will define their firms and themselves.


Matthew Reynolds is the Chief Operating & Compliance Officer at Chicago, Ill.-based financial services firm Noyes and its subsidiaries, David A. Noyes & Company, Member FINRA and Noyes Advisors, LLC, a registered investment advisor with the SEC.  

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