Change Into Opportunity: Navigate a Departure with an Outsourced FINOP

A FINOP (Financial and Operations Principal) plays a critical role in the regulatory and financial oversight of broker-dealers, ensuring compliance with complex rules and regulations. However, when a FINOP departs, it can pose immediate risks to both operational efficiency and compliance. In such instances, outsourcing your FINOP function can be a strategic solution to maintain continuity and minimize disruption. By partnering with an outsourced FINOP, your firm gains access to specialized expertise, ensures regulatory responsibilities are met, and avoids costly downtime while searching for a permanent replacement.

What is a Financial & Operations Principal (FINOP)?

A broker-dealer FINOP is a registered position, mandated by the Financial Industry Regulatory Authority (FINRA) and Securities Exchange Commission (SEC) rules and regulations. The primary responsibility of a broker-dealer FINOP is to oversee the financial and operational aspects of the firm, ensuring compliance with regulatory requirements.

A Series 27 or Series 28 licensed FINOP requires comprehensive knowledge of the practices in these areas:

• Net Capital compliance
• Financial regulatory reporting
• Review, analysis and preservation of accurate books and records
• Securities investor protection
• Annual audit and regulatory exam support

The Impact of a FINOP Departure

When a firm’s FINOP departs, there are immediate operational and compliance risks that must be addressed, from net capital computations to regulatory requirements and timing considerations (e.g., Form U4/U5 updates, replacement deadlines).

Firms also should address the potential for knowledge loss and gaps in continuity. While your firm searches for a replacement, who will be calculating net capital? Who will maintain your firm’s books and records correctly for the appropriate amount of time? Who will ensure they’re easily accessible when they need to be?

Whether your firm requires a new FINOP due to retirement, resignation, internal transition, or your are registering your firm as a broker-dealer, you will need someone to step in and ensure your regulatory and operational needs are being met.

Why An Outsourced FINOP Makes Sense

Rapid Response and Continuity

Avoid downtime during the search for a permanent replacement. Experienced FINOPs can fill the position until your firm has found a suitable candidate. They can also support a FINOP already in place by providing valuable knowledge and experience, or fill the position indefinitely.

Expertise and Perspective

The right outsourced FINOP has the experience and resources to navigate regulatory nuances and interpretations. They can draw on experience gained from working with clients of different sizes and complexities, and navigating a variety of regulatory issues.

Objective Oversight

External professionals provide fresh analysis of financial processes and controls. Experienced third-party FINOPs can quickly identify weaknesses in existing processes, uncover compliance risks, and recommend practical improvements.

Scalable Support for Growing or Complex Firms

Simply checking the boxes for the FINOP position isn’t enough if you have a growing or complex business model. The financial responsibility rules require a lot of information about the firm in total. If you don’t understand an entire firm or the business, it’s very difficult to be sure everything is covered.

Cost-Effective Solution

Outsourced FINOPs are often cost-effective when compared to recruiting, hiring, and training in-house. Hiring an outsourced FINOP while you search for a replacement or train an internal replacement not only fills a crucial, required position. It also allows for on-the-job training for your emerging FINOP, and can provide support during the adjustment period.

What to Look for in a FINOP Outsourcing Partner

A strong, outsourced FINOP has a deep understanding of financial regulations and compliance requirements, is adept at maintaining accurate financial records and preparing financial statements, stays updated on changes in financial regulations, and ensures the broker-dealer adapts accordingly.

An outsourced FINOP should have:

• A deep understanding of FINRA and SEC rules (especially net capital and recordkeeping requirements)
• Experience navigating audits, filings, and examinations
• The ability to integrate with your existing tech and team
• Strong communication and documentation processes

Making the FINOP Transition Smooth

Communicate clearly with regulators and stakeholders.

Clear communication during a FINOP transition is essential to maintaining trust, demonstrating control, and minimizing disruptions. Proactively informing regulators can help ensure compliance with regulatory requirements and avoid potential misunderstandings or penalties. Transparent communication builds confidence that the firm is managing the transition effectively and maintaining financial integrity throughout the process.

Leverage your outsourcing partner for a gap analysis and control review.

An outsourced partner providing a gap analysis and control review during a FINOP transition ensures continuity, strengthens internal controls, and positions the firm to meet regulatory expectations with confidence during and after the transition.

The Outsourcing Resource You Need

A FINOP departure doesn’t have to derail operations or increase your firm’s regulatory risk. With the right outsourcing partner, you can turn a compliance challenge into a growth opportunity by gaining access to specialized expertise, reducing operational burden, and freeing up resources to focus on strategic initiatives.

Oyster Consulting’s outsourced FINOPs have significant experience supervising accounting and finance teams, working with independent auditors, performing regulatory computations, and filing regulatory reports. They will share their expertise and provide support to your firm’s senior management. Oyster’s FINOP consultants are licensed, experienced professionals with a bench of industry leaders behind them. When you outsource your FINOP role, you get a team, not just a consultant.