Business continuity planning is a hot issue in the finance sector, and understandably so because of the real time nature of much of its activities. It’s not surprising therefore that two of the prominent regulating bodies in the United States, FINRA (Financial Industry Regulatory Authority, Inc.) and NFA (National Futures Association), both define their expectations about how their brokerage and exchange members are to implement business continuity. What is surprising however is the business continuity “get out” clause in the FAQ of the FINRA website.
Both FINRA and NFA are clear about the need to have business continuity planning and the responsibility towards partners and customers in the financial sector. FINRA presents a curious answer to question number 15 in its FAQ on BC, “Would my firm be required to stay in business in the event of a significant business disruption?” FINRA says “No”. It goes on to state that the BCP “must address how you will assure customers’ prompt access to their funds and securities in the event that you determine that your firm is unable to continue its business”. This is part of FINRA Rule 4370, which also states that members must make certain disclosures about what their BCP is designed to do, and defines how often it should be tested.
Yet FINRA is in effect authorising its members to fail, even if it is ensuring that customers will not be unduly penalised in that case. Both FINRA and NFA are independent self-regulatory organisations, non-governmental although with historical connections with various pieces of U.S. legislation: the Securities Exchange Act of 1934 for FINRA and the Commodity Exchange Act of 1936 for NFA. Members of FINRA can be members of NFA. Why FINRA takes such a position on business continuity planning whereas NFA does not (or at least we haven’t come across it on the NFA web site) is a mystery.