It is hard to believe that it has been almost 5 years since my last post. While a lot has stayed the same, a lot has changed. One thing is for sure, the role of the FINOP is more important than ever. In an effort to ensure transparency, the regulators continue to add additional regulatory reports to our periodic filings. Depending on your minimum net capital requirements and broker/dealer business types, we are now preparing and filing some or all of the following: FOCUS, Supplemental Statement of Income (SSOI), Form Custody, Supplemental Inventory Schedule, and Supplemental Schedule for Derivatives and Other Off-Balance Sheet Items (OBS).
Additionally, we have been given some new hats to wear. Per FINRA Regulatory Notice 17-30, effective October 2018, firms are required to designate a Principal Financial Officer (PFO) and a Principal Operations Officer (POO). The PFO designation makes all the sense in the world to me. The FINOP has always been considered the “regulatory CFO”. The PFO designation has memorialized the role and its responsibilities. The PFO must hold the Series 27 FINOP license, and is required to primarily be responsible for financial filings and the related books and records.
On the other hand, the POO designation is where I think they missed the mark. It appears that the the POO is geared towards self-clearing or firms with a minimum requirement of $250,000 or more. But, it is does not exclude all of the other firms, which make up the majority of FINRA members. The POO has the primary responsibility for the day-to-day operations of the business, including many securities and customer related matters. AND, the POO is required to have the Series 27. This is where I have an issue. I’ve held my FINOP license for over 20 years, and I consider myself a regulatory accounting expert, but I do not profess to be an operations expert; I never needed to be. Putting aside the testing/license requirement, the practical experience necessary to aptly oversee operations is where the disconnect lies. We typically service the small to medium sized broker/dealers, and with that comes limited resources. Having said that, employees responsible for operations, compliance, and trading, are typically very qualified to address the needs of their respective departments. In fact, I would argue that those individuals with smaller firm experience are more qualified than those with just large firm experience, because they’ve done and seen it all. However, they shouldn’t be expected to sit for, or pass the Series 27 exam. Nor should a FINOP be expected to oversee operations. The Rule allows for the POO to designate others to handle certain day-to-day tasks, but still keeps the ultimate responsibility with the POO.
As FINOPs, we can voice our opinion, but when push comes to shove, we are at the mercy of the regulators. As such, we have taken the necessary steps to ensure that the most appropriate individuals are assigned these new roles, and in the cases where we must wear the POO hats and are somewhat in over our heads, we are working towards getting better at it. We are collaborating with those individuals that have the expertise to see that the proper structure, checks and balances, and oversight is in place.