FINRA Examinations are regulatory reviews conducted by the Financial Industry Regulatory Authority to assess its member firms’ adherence to U.S. securities laws, FINRA rules, and Municipal Securities Rulemaking Board rules. While primarily focused on traditional securities, FINRA’s oversight extends to member firms engaging in crypto asset activities that fall under existing securities regulations. The purpose is to ensure investor protection and market integrity.
Mechanism
The examination mechanism involves FINRA staff meticulously analyzing a firm’s books, records, and internal control documentation, conducting interviews with key personnel, and scrutinizing operational procedures related to trading, customer accounts, and technology infrastructure. For crypto-related operations, this specifically includes scrutinizing digital asset custody practices, order execution protocols, customer disclosures, and AML/KYC adherence. The process is systematic, employing risk-based methodologies to prioritize areas of potential non-compliance or investor harm.
Methodology
The strategic approach to preparing for FINRA Examinations requires member firms to establish and maintain comprehensive compliance programs, ensure meticulous record-keeping, and conduct proactive internal audits to identify and rectify deficiencies. This methodology mandates continuous training for staff on regulatory obligations and the technical specifics of digital asset operations. For firms engaged in crypto, it necessitates demonstrating robust systems for security, operational resilience, and strict adherence to evolving guidance on digital asset classification and handling, ensuring transparency and accountability.
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