The Financial Industry Regulatory Agency (Finra) says it is pushing on with new “thematic exams” that helped the self-regulatory organization take enforcement actions against broker-dealers that use off-channel communications such as WhatsApp.

The regulator's thematic exams focus on a particular business area that Finra deems to be of concern. They were introduced last year and Finra is sharing exam findings with the Securities and Exchange Commission, which recently brought charges against 26 firms for personal communications violations that were settled with $390 million in penalties. Firms caught up in that enforcement included Ameriprise Financial Services, Edward D. Jones & Co., LPL Financial and Raymond James & Associates, which each paid a $50 million penalty to settle the charges. Finra has also brought its own charges against broker-dealers for the communications failures.

Beyond uncovering massive compliance issues with firms’ use of off-channel communications, thematic exams are now focused on a lack of supervision over key functions, including wire movements, financial reporting, supervisory controls, improper access to customers’ bank accounts, accounting and expanse-sharing arrangements, John Marino, Finra vice president for firm group examinations, said during a Sept. 3 Finra podcast.

“We’ve seen some firms where they’ve lacked supervisory review over various key functions," he said. "We’ve also seen inaccuracies in a firm’s books and records, which have led to inaccurate financial reporting and in some cases even net capital deficiencies."

“We’ve also seen some situations where firms have not adequately outlined the allocation of expenses within their expense sharing and service-level agreements,” Marino added.

Finra is also using thematic exams to focus on the information broker-dealers share with the media to be named in rankings put out by news organizations such as Barron's and Forbes, he said.

“The broker rankings one was an interesting one because it’s an area that we really haven’t looked at before,” said Michael Solomon, Finra executive vice president of examinations and membership application programs.

“We wanted to see what kinds of controls firms had to ensure that ... material and information provided to those periodicals was accurate," he said. The exams also were looking for inaccuracies that "could result in somebody getting a higher ranking."

What are “thematic exams” and how do they differ from sweep exams?

“One of the benefits to doing these thematic reviews is to really look for potential common themes and trends and opportunities where we can share with the industry some of the things that we may be seeing as common areas for improvement," Marino said.

Tom Mellett, vice president of firm group examinations at Finra, said the thematic exams allow the regulator “to see how firms are addressing an issue ... and potentially get ahead of a problem before it persists in the industry for a long amount of time.”

Sweep exams are typically conducted when there is an indication of a problem, while “thematic reviews are about learning,” Mellett added.

Attorney Brian Hamburger of Hamburger Law Firm and its affiliated consultancy, MarketCounsel Consulting, said he worries about Finra’s use of thematic exams to educate new examiners and does not see how they differ from sweep exams.

“It’s hard for me to distinguish this initiative from sweep exams, those exams focused on a single issue,” Hamburger said. “I find it to be an entertaining concept to suggest that Finra is launching a series of exams designed for learning. I was unaware that registrants were now responsible for teaching its regulators about the business and presumably then suffering the consequences of a newly learned regulator.”

Solomon said the thematic exams are needed to improve efficiencies in Finra’s exam program. Finra has "3,300 firms, over 600,000 registered representatives, 150,000 branches. That’s a lot of landscape for the exam program to cover. We have a lot of staff, but that’s a lot of work," he said "So, what we’ve talked about ... is really trying to think about efficiency and how to really use our resources in the smartest, best way possible to address risks where they are, to help firms try to improve their controls in order to protect their customers and protect the marketplace."