The Finance and Operations Principal (FinOp) is the primary go-to for ensuring financial regulatory compliance and protecting companies and customers alike from faulty business operations. Serving a wide variety of organizations, FinOps are responsible for much more than crunching numbers and scrutinizing the income statement. It’s important to understand the nature of these responsibilities, as a skilled FinOp can help a business remain in good standing with regulatory bodies like the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission (SEC).

Placating the gatekeepers

SEC is the governing authority to monitor trading entities, ensuring that markets remain fair and investors stay protected. But what about the non-governmental self-regulatory organizations (SROs) like FINRA?FINRA, formerly the National Association of Securities Dealers (NASD), deploys a host of self-imposed, commonly agreed upon rules it enforces based on federal laws. As such, it acts as THE dominant institution for licensing and regulating broker-dealers, currently overseeing more than 4,000 brokerage firms.

To remain in good standing with FINRA regulations, an organization’s FinOp must be registered with either a Series 27 (Limited Principal-Financial and Operations) or Series 28 (Limited Principal-Introducing Broker/Dealer Financial and Operations) certification. So, what does that actually mean?In essence, producing such a certification tells FINRA that a FinOp is capable of managing and executing the basic (albeit highly critical) functions associated with the position. The type of certification also delineates where the FinOp is qualified to work.A Series 27 certification qualifies the FinOp to conduct their duties for virtually any broker-dealer, whereas the Series 28 does not. In practice, this means that a Series 27-qualified FinOp will be eligible to work for organizations that carry a higher net capital (the liquidity threshold a broker-dealer must maintain to protect its customers, counter-parties, and creditors in case things go badly for the business). Per FINRA’s official website, broker-dealers that are required to carry at least $250,000 in net capital, as well as municipal securities brokers that require a minimum net capital of $150,000 (SEC Rule 15c3-1) must obtain a Series 27 certification.

Functions of a FinOp

A FinOp can wear a variety of hats within an organization. It’s typically assumed that they merely untangle financial statements and maintain net capital compliance. While an important part of the job, it’s not all they do. To maximize their utility, FinOps take net capital insights and project future movement. By projecting and analyzing a company’s position from an outside perspective, managers can more objectively determine the best way forward.

What about FOCUS reports?

Financial and Operational Combined Uniform Single (FOCUS) Reports, also fall within the FinOp’s wheelhouse. Beyond simply building and quality checking these documents, a good FinOp knows how and when to submit them. For example, Part I of a FOCUS Report serves as an abbreviated list of the most essential data and is filed on a monthly basis. Part II is a much more detailed report and is submitted quarterly. Errors or missed deadlines are typically met with undue hassle in the form of audits and questions, so having a reliable FinOp to tackle these tasks is crucial.  

The ultimate bookkeeper

Another aspect of a FinOp’s job description requires them to manage the books. FinOps not only track your organization’s reports, but supervise its overall performance and responsibilities under the SEC’s financial rules. In addition to handling all of your most important documents, FinOps can also assist with functions like report preparation, auditing assistance, and loan management. Documents your FinOp will likely handle:

• General ledger
• Balance sheet
• Income statement
• Cash flow statement
• Reconciled bank statements
• Accounts payable reports

To outsource or look within

Companies can either employ full-time FinOps or outsource the role. Most large, established companies prefer the former, as in-house FinOps allow organizations more control over internal processes and routines. This also ensures that the FinOp is completely dedicated to the business, rather than an outside employee who may also be managing other accounts.Outsourcing FinOps is gaining popularity, however, partly due to the growing number of startups that simply cannot afford a full-time employee to serve in this role. Contract FinOps approach the role an outsider’s perspective, which can spark innovation. Additionally, they are likely to be more up to date on compliance regulations.There are many FinOp outsourcing firms that help companies prepare and audit reports. They can operate on their own, review the work of your in-house professional, or assist the executive team with its strategic outlook.Some of the organizations FinOps might serve in include:

• Institutional sales
• Integrated services organizations
• Retail broker-dealers
• Acquisition broker-dealers
• Investment banks

Successfully employing a FinOp

It is important for FinOps to have access to required documents and authority to act in your interests. This necessitates open communication and a full production of your organization’s financial records. As compliance regulations continually evolve, maintaining this connectedness will aid in maintaining a healthy, compliant business operation.