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How Do Financial Firms Fail FINRA Cybersecurity Audits
and How Can They Prevent It?
Financial firms rarely fail FINRA cybersecurity audits because of advanced hacking or zero-day exploits. Most failures are preventable—and Netready can help you avoid them.
The Truth About FINRA Audit Failures
In practice, most audit failures come down to 3–5 preventable gaps: incomplete documentation, lack of ongoing risk assessments, weak access controls, and untested incident response plans. For financial firms with 20–50 employees, these issues can lead to six-figure fines, mandatory remediation, and increased regulatory scrutiny. The good news is that firms using a structured cybersecurity framework and performing quarterly risk reviews can dramatically reduce their risk of audit findings and often resolve issues before regulators ever flag them.
Failure #1:
Incomplete or Generic Written Security Policies
One of the most common reasons financial firms fail FINRA audits is relying on generic or outdated security policies.
What FINRA Flags
- Policies copied from templates that don't reflect the firm's actual systems
- No documented annual review or approval
- Policies that don't map to real-world controls
FINRA expects written information security policies to reflect how your firm actually operates, not how a generic firm might operate.
How to Prevent This
- Customize policies to your firm's size, data types, vendors, and workflows
- Review and formally approve policies at least annually
- Map each policy section to applicable FINRA expectations
A policy that exists but isn't reviewed or enforced is treated as nonexistent during an audit.
Failure #2:
No Ongoing Cybersecurity Risk Assessments
Many firms perform a risk assessment once, often during onboarding with an MSP, and never revisit it.
What FINRA Flags
- One-time assessments with no updates
- Identified risks with no remediation tracking
- No evidence of follow-up or prioritization
From a regulatory standpoint, cybersecurity risk is continuous, not a one-and-done exercise.
How to Prevent This
- Conduct quarterly cybersecurity risk assessments
- Maintain a risk register with severity scoring
- Track remediation actions with owners and timelines
Quarterly assessments not only reduce audit risk; they also demonstrate proactive governance if an incident occurs.
Failure #3:
Weak Access Controls and MFA Gaps
Access control failures are among the fastest ways to trigger audit findings.
What FINRA Flags
- Missing multi-factor authentication (MFA)
- Excessive administrative privileges
- No regular access reviews
Even a single system without MFA, especially email or remote access, can be cited as a material weakness.
How to Prevent This
- Enforce MFA across email, VPNs, admin accounts, and cloud platforms
- Apply least privilege access by default
- Perform quarterly access reviews and document them
Strong access controls are one of the clearest signals of cybersecurity maturity during a FINRA exam.
Failure #4:
Untested Incident Response Plans
Having an incident response plan isn't enough. FINRA expects firms to prove the plan actually works.
What FINRA Flags
- Incident response plans that were never tested
- No tabletop exercises or simulations
- Staff unsure of roles during a security event
An untested plan is treated as a nonexistent plan.
How to Prevent This
- Conduct at least one incident response tabletop exercise per year
- Document outcomes, gaps, and improvements
- Clearly define roles for IT, compliance, leadership, and external vendors
Testing your response shows regulators that your firm can act quickly and decisively under pressure.
Failure #5:
No Clear Security Ownership
FINRA consistently expects firms to identify who owns cybersecurity.
What FINRA Flags
- "IT handles security" with no named leader
- No reporting to executive leadership
- No accountability for risk decisions
Without ownership, cybersecurity becomes fragmented and regulators notice.
How to Prevent This
- Assign a named security owner (internal or vCSO)
- Provide quarterly security reporting to leadership
- Establish clear escalation and decision-making authority
Firms with defined security leadership consistently perform better in audits and incident response.
Real-World Example (Financial Firm, Southern California)
A Southern California financial firm with 20 employees failed a FINRA exam due to outdated security policies and the absence of documented risk assessments. While the firm had IT support, it lacked formal governance and testing. After engaging Netready, the firm implemented quarterly risk assessments, MFA across all systems, and an annual incident response tabletop exercise. Within 90 days, all findings were remediated, and the firm passed its follow-up review with no further regulatory action.
How Financial Firms Can Stay
Audit-Ready Year-Round
Financial firms that pass FINRA cybersecurity audits consistently share a few common practices:
- FINRA-aligned written security policies
- Quarterly cybersecurity risk assessments
- MFA and least-privilege access controls
- Tested incident response plans
- Clear security ownership and leadership reporting
For firms with 20–50 employees, these controls are achievable without enterprise-level budgets, especially when guided by a security-first MSP with financial services expertise.
Why Firms Choose a Security-First MSP like Netready
Working with an MSP that understands FINRA expectations helps financial firms:
- Reduce audit risk before regulatory reviews occur
- Respond faster to security incidents
- Maintain continuous compliance instead of scrambling annually
A security-first MSP like NetReady provides 24/7 monitoring, 15-minute response times, quarterly risk reviews, and access to vCSO-level guidance, all critical components of modern regulatory readiness.
Final Takeaway
Most FINRA cybersecurity audit failures are preventable. By addressing documentation gaps, enforcing access controls, testing incident response plans, and assigning clear security ownership, financial firms can significantly reduce regulatory risk and operate with confidence.
Want to Know Where Your Firm Stands?
Many financial firms assume they are audit-ready until gaps are identified during a regulatory review. A structured cybersecurity review can help identify documentation, control, and governance gaps before they become regulatory issues.
