Broker Dealer Guide
The Division conducts periodic examinations of the business and records of licensed broker-dealers and their branch offices at such times and in such scope as the Division determines. The examinations are not conducted with an eye toward finding evidence of violations that will lead to enforcement action against the broker-dealer or its employees. Rather, we review the broker-dealer's procedures and records to identify areas where changes are needed to ensure compliance with all regulations and to help the broker-dealer conduct its business in the most forthright manner with its clients. Proper record retention can also be a valuable tool should a dispute arise and the broker-dealer needs to demonstrate the nature of its account relationship and the investor protections it has afforded its clients.
Under the revised Wisconsin Uniform Securities Law that took effect January 1, 2009, the administrator may “…copy, and may remove for audit or inspection copies of, all records the administrator reasonably considers necessary or appropriate to conduct the audit or inspection.” ( s. 551.411(4), Wis. Stats. ) S. 551.412(4)(h) , Wis. Stats., provides a basis for discipline if the broker-dealer or its agents “Refuse[s] to allow or otherwise impedes the administrator from conducting an audit or inspection under s. 551.411(4) or refuse[s] access to a registrant’s office to conduct an audit or inspection…”
Occasionally, a pre-examination questionnaire will be sent to update the staff's information used for determining the examination schedule. Most examinations are made without prior notice. However, staff may contact the broker-dealer a day or two in advance to ensure that someone with access to information and records needed in the examination will be available. A document list may be sent to the office so the broker-dealer can gather the requested records to help speed the examination process for the benefit of both the examiners and the office personnel and customers. In any event, the broker-dealer must make available the supervisor or another person who is familiar with the records and procedures of the firm for the examination during normal Division business hours, Monday through Friday, between the hours of 8am and 5pm. The staff will try to be as flexible as possible but must nevertheless conduct their examination in a timely manner.
The fee for an examination conducted in Wisconsin is $100 per day per examiner ( s. DFI-Sec 7.01(3)(d), Wis. Adm. Code ). TThis fee is not adjusted for examinations that are less than a full day and are invoiced with the examination report, which is mailed to the broker-dealer after the on-site examination is completed. Payment should be remitted to the Department of Financial Institutions upon receipt of the invoice. Any questions should be directed to the examiner in charge of the examination.
When conducting the examination, it is essential that the examiner gain an understanding of the broker-dealer's operations. An initial interview with the principals and/or manager will cover information regarding how the broker-dealer markets itself to new clients, the kinds of brokerage services being provided, and the types and number of clients serviced. A list of the office personnel and their duties will be requested along with information regarding the preparation, filing and retention of the books and records. Supervisory and internal control procedures will also be discussed during the initial interview.
Thereafter, the examiner will review a random sample of the broker-dealer's
books and records, including but not limited to the records listed in
the books and records section of this Guide. The examiners may, at their
discretion, ask to review any other records that may have a bearing on
the operations or relationships of the broker-dealer's business or any
of its employees. Most branch office examinations take one day to complete.
At the conclusion of the on-site portion of the examination, the examiner may review the findings with a principal or manager. In some instances, the examiner may ask that additional information be sent to the examiner's office and any additional deficiencies or concerns that arise will be addressed with the firm.
A written examination report will always be sent to the broker-dealer,
with a copy to the branch, usually within two weeks of the on-site examination
unless additional information has been requested. The letter will note
any deficiencies or concerns the staff had as a result of the examination.
Deficiencies are possible violations or significant problems in procedures
or recordkeeping which must be addressed. Concerns are situations that
do not rise to the level of violations or serious operational problems,
but are areas which may result in more serious problems in the future
and which the staff will bring to the broker-dealer’s attention
for consideration. Any deficiencies or concerns noted by staff must be
adequately resolved or addressed by the broker-dealer before the examiner
will close the examination file.
The staff may conduct a follow-up exam to ensure that any changes in procedures made as a result of the examination report have been implemented adequately. There is no additional fee for these follow-up exams.
Division’s examination records are confidential and, by law, are not open to the public under public records laws. The Division may share information from exams with other regulatory or law enforcement agencies that make a reasonable request. Any information relevant to an enforcement action, which was developed from examination findings, is available to the public to the extent it establishes the violations that the administrative action is based upon.