The Financial Industry Regulatory Authority (FINRA) recently announced the completion of the review process for FINRA Rule 4370 and upholds the Rule as it currently stands. The agency put the Business Continuity Plan (BCP) Rule 4370 into place to ensure continuity of operations for broker-dealer firms following a disruption or disaster. FINRA based its decision to keep 4370 intact on the recently completed BCP Rule and Pandemic Review, both of which highlight the benefits of the Rule.
The FINRA BCP Rule requires broker-dealers to maintain continuity plans designed to ensure their ability to resume business operations after an interruption or in the event of a disaster. Regulatory Notice 21-44 provides clarification of FINRA’s compliance obligations for broker-dealers waiting to see where the agency would land regarding updating or maintaining the Rule.
Background on Rule 4370
In early 2019, announced a review of the Rule to determine its effectiveness and viability. In addition, the agency considered the costs, risks, and benefits associated with developing, maintaining, and implementing BCPs against not utilizing them.
According to FINRA’s announcement, stakeholders reported that Rule 4370 was working as intended. FINRA observed that the Rule’s “flexible, non-prescriptive, and risk-based approach has been effective in ensuring firms of all sizes are prepared for potential business disruptions.”
Additionally, during the early stages of the pandemic, FINRA also published Regulatory Notice 20-08, which recommended that member firms review their plans for pandemic preparedness.
What Does This Mean For Your Firm?
FINRA has made it clear that firms should continue developing and maintaining plans according to Rule 4370. However, the agency will not be providing specific guidance; firms are on their own when it comes to fulfilling the requirements for compliance.
What Are the Next Steps?
New and established brokerage firms will need to evaluate their status regarding Rule 4370 to guarantee compliance and that they are operating with an effective BCP. However, a BCP alone is not enough to ensure continuity.
For firms looking to assess their disaster readiness and compliance, there are six critical components of a BCP that will be there when you need it.
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- Establish or Evaluate Existing BCP
- Test BCP
- Validate Vendor Readiness to Support BCP
- Ensure Remote Access for Essential Personnel
- Educate Personnel and Conduct Training
- Routinely Repeat this Process
By following these steps, your firm will be prepared for potential business disruptions and remain compliant. Of course, there is more involved in each of these steps. For more granularity, read our post, Business Continuity Checklist for Financial Services Firms, which outlines just how to assure operational continuity and data protection.
Coretelligent is here to help your firm navigate the details in developing and maintaining a business continuity plan. We can also assist with incorporating it into your IT strategy, cybersecurity solutions, and compliance reporting. As an MSP with considerable experience within the financial services industry, Coretelligent understands the regulatory imperatives required of you and your business. That is one of the main benefits of working with an IT partner with deep industry knowledge and expertise.
Reach out and we will work with your IT and compliance teams to review your BCP and develop a roadmap to make sure your firm is secure.
