Reports of trainee bankers cheating on internal exams at JP Morgan’s New York office and at Goldman Sachs in London and New York point to the need to prepare for a future in which training and compliance are merged.
The cheating scandals also highlighted the growing importance regulators are assigning to the training concept — as expressed in examination priorities announced in January and the October 1 enhancement of the Continuing Education (CE) Program mandated by the Financial Industry Regulatory Authority (FINRA).
The Securities Industry Continuing Education Program (CE Program) is intended to keep registered securities industry personnel up-to-date about rules and other issues important to performing their jobs appropriately. The continuing education process is seen as key to ensuring firm personnel have knowledge of the regulations they need specific to their job and employer’s business and to building cultures of compliance in firms.
The CE Program is a two-part program composed of a Firm Element and a Regulatory Element.
The Firm Element requires broker-dealers to establish a formal training program to keep covered registered persons up to date on job- and product-related subjects.
The Regulatory Element requires all registered individuals to complete a computer-based training session within 120 days of the second anniversary of their initial registration date, and every three years afterward.
Those approved test centers are operated by Pearson VUE or Prometric, the vendors supplying the testing materials and scoring, regardless of which method the test-taker chooses. The exams offered at the test centers are proctored. Prometric’s test center rules include consenting to be monitored by video, physical walk-throughs and an observation window during the test.
In an enfoircement action against an employee at Transamerica Financial Advisors, Inc. in February 2013, FINRA detailed how Prometric Testing Center personnel had allegedly observed the Transamerica employee repeatedly rolling up his shirt sleeve and appearing to read something on his arm. Prometric’s personnel examined his arm and found a series of numbers and letters written there, noting they corresponded with the answers to the questions he was answering in one module.
In accordance with the terms of the FINRA Test Center Rules of conduct the Transamerica employee had signed, FINRA imposed a bar from association with all FINRA member firms in all capacities on him.
This enforcement action and the firings at Goldman and JPMorgan of those who cheated on internally administered exams are consistent with the strict mandate on the part of regulators in the training arena.
If an individual can’t be honest in test-taking, can you trust them with firm or customer funds?
Besides swiftly disciplining exam cheaters, firms must also create a training program that satisfies FINRA.
The training must ensure that employees have the skill sets needed to do their job and protect investors, and the curriculum must be updated as the business evolves.
Firms must meet FINRA’s CE Program requirement of submitting an annual needs analysis and written training plan, keeping records that document the content and completion of the program, and exactly how any vendors employed in this arena (and their products and services) are comprehensively vetted.
The tone of compliance comes from the entire management team. If executives take continuing education seriously — from the onboarding stage and throughout an employee’s tenure — this critical component of compliance culture can go a long way toward changing behavior.
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Julie DiMauro is a contributing editor of the FCPA Blog. She works in the Regulatory Intelligence group at Thomson Reuters in New York. Follow Julie on Twitter @Julie_DiMauro and email her at [email protected].
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