A FINRA audit generally refers to a regulatory examination conducted by the Financial Industry Regulatory Authority (FINRA) of one of its member firms, typically a registered broker-dealer. FINRA uses examinations and ongoing risk monitoring to assess compliance with its rules, federal securities laws, and other applicable requirements. The scope may include supervision, communications, books and records, customer protection, financial controls, and Regulation Best Interest. Depending on the firm’s risk profile and market impact, FINRA generally examines firms on one-, two-, or four-year cycles, with every member firm examined at least once every four years.
The annual Broker Dealer audit requirement comes from SEC Rule 17a-5, not from FINRA’s routine examination program. Most registered broker-dealers must file annual reports that include a financial report and either a compliance report or an exemption report. The filing generally must be made within 60 calendar days after fiscal year-end, subject to limited exceptions and extension procedures. An independent public accountant typically audits the financial statements and performs the required examination or review of the compliance or exemption report. Broker-dealers should coordinate the close, supporting schedules, financial responsibility calculations, and auditor requests well before year-end so filing issues do not surface at the deadline.
Recurring FINRA findings tend to come from execution failures rather than unfamiliar rules. Common trouble spots include incomplete books and records, weak or undocumented supervisory reviews, business communications occurring outside approved channels, Reg BI procedures that are not meaningfully tested, and net capital or customer-protection controls that are not actively monitored. Written procedures may technically exist but fail to match how the business actually operates. That gap creates repeat findings because examiners look for evidence that controls are functioning in practice. Financial Due Diligence discipline can be useful here: reconcile the records, test exceptions, verify ownership of tasks, and document how problems were resolved.
FINRA Rule 4370 requires member firms to maintain a written business continuity plan for emergencies or significant business disruptions. The plan must be reasonably designed to help the firm meet customer obligations and address relationships with other broker-dealers and counterparties. At a minimum, it should address data backup and recovery, mission-critical systems, communications, alternate work locations, financial and operational assessments, regulatory reporting, and customer access to funds and securities. Firms must review the plan annually and update it when material changes occur. Examiners scrutinize business continuity because a polished document is not enough; the plan must reflect the firm’s actual operations, vendors, systems, and responsibilities.
Preparation should begin before an examination notice arrives. Start by comparing written supervisory procedures with how the business actually operates. Test whether required reviews occurred, whether exceptions were escalated, and whether remediation was documented. Reconcile books and records, confirm retention of business communications, review Reg BI supervision, test financial responsibility controls, and update the business continuity plan. Assign owners to open items and keep evidence of closure. A targeted Forensic Accounting review may help when records are inconsistent or transactions require deeper tracing. The goal is to find the same gaps an examiner would find, while the firm still has time to correct the process and document the correction.
How often does FINRA examine registered broker-dealers?
FINRA uses a risk-based examination cycle. Depending on the firm’s business model and risk profile, examinations generally occur every one, two, or four years. FINRA states that every member firm is examined at least once every four years at minimum.
How does a FINRA examination differ from an independent audit?
A FINRA examination is a regulatory review performed by FINRA to assess compliance with securities laws and FINRA rules. An independent annual audit under Rule 17a-5 is performed by a public accountant and focuses on required financial and compliance reporting.
What records must a broker-dealer maintain for a FINRA examination?
Examiners may request books and records required under SEC and FINRA rules, including financial ledgers, trade records, customer account information, communications, supervisory documentation, net capital calculations, policies, and other records relevant to the examination’s specific scope and the firm’s activities.
Do corrected FINRA findings still result in sanctions?
Yes. Correcting a finding does not automatically eliminate possible sanctions. Prompt, voluntary remediation can be a mitigating factor, and in some circumstances FINRA may reduce or forgo formal disciplinary action. The outcome depends on the violation, timing, harm, and cooperation.
For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact Durran Dunn, partner in charge of Bennett Thrasher’s Risk Advisory Services practice, or call us at 770.396.2200.
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