By Karen Fischer

In the current regulatory environment your financial record keeping is now a full time job. 10 years ago all that was really required to be a firm’s FINOP was some accounting experience and a series 27.  But that was then, and this is now. The events of 9-11 and the resulting AML and Patriot Act legislation have radically increased the role the FINOP plays.  In addition, massive accounting fiascos at companies like ENRON, WCOM and Arthur Anderson has created a vacuum of regulatory requirements on Firm’s and their FINOP’s. The demands on your FINOP go way beyond creating financial statements and filing a FOCUS report. Besides knowing how to produce a Balance Sheet and Income Statement, FINOPS need to be able to determine what assets are “allowable” or “non allowable and what liabilities are or are not “aggregate indebtedness”. FINOPS need to understand and anticipate what effect foreign securities and foreign currencies will have on the firm’s net capital in order to comply with the Sarbanes-Oxley Rules, Anti Money Laundering rules, and the Privacy Act affecting your customer account record keeping. The net capital rules have become complex, and with the merger of FINRA and the NYSE constantly changing. A Financial and Operations principal needs to be able to prepare for and supervise a Finra, SEC, and State audit, supervise the firm’s annual certified audit, and supervise the firms AML audit. It’s a tall order and Firms and FINOPS are feeling the effects.

Compliance has expanded to affect every part of the  securities business, particularly the Financial and Operations side. In an increasingly complex regulatory environment, many firms are reporting heightened reliance on the advice of experienced Financial and Operations Principals, not only to prepare all the requisite reports and keep the filings current and correct – but advise in the regular course of business in order to be sure that you are not violating any securities laws.  Many broker dealers have turned to outsourcing not only as their primary source for quality Financial and Operations expertise, but for supplemental advice as well.  One of the best ways to ensure your firm is keeping up with the changing regulatory times is to have an outside and truly independent accounting team come in and review the work that your in house staff is conducting.

Make no mistake the additional regulatory burden does add cost to the running of the Broker Dealer. But it is important to keep in mind that we live in changing times. While the perception may be that these added costs are unnecessary and onerous, it well to remember the “ounce of prevention” adage. Thoughtful planning and consideration of these issues in advance helps firms mitigate these costs and avoid the devastation that can come from a lack of appreciation of the new regulatory environment. Better to handle these issues on your own terms, at a time of your choosing – rather than suffer unplanned events. As the adage goes, an ounce of prevention is always better than a pound of cure. 

Careful planning in advance of problems is the way to go. Though there are up-front costs associated with proactive measures, the benefits of smooth running can far outweigh the alternatives.