FINRA COMPLIANCE RESOURCE

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. In practice, most audit failures come down to 3–5 preventable gaps that lead to six-figure fines, mandatory remediation, and increased regulatory scrutiny.

For financial firms with 20–50 employees, incomplete documentation, lack of ongoing risk assessments, weak access controls, and untested incident response plans are the most common causes of audit failure. 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.

THE 5 MOST COMMON FINRA CYBERSECURITY AUDIT FAILURES

FINRA consistently identifies the same preventable gaps across financial firms. Below are the five most common failures and how to prevent each one.

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One of the most common reasons financial firms fail FINRA audits is relying on generic or outdated security policies. FINRA expects written information security policies to reflect how your firm actually operates, not how a generic firm might operate.

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

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. From a regulatory standpoint, cybersecurity risk is continuous, not a one-and-done exercise.

What FINRA Flags:

  • One-time assessments with no updates
  • Identified risks with no remediation tracking
  • No evidence of follow-up or prioritization

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. Even a single system without MFA, especially email or remote access, can be cited as a material weakness.

What FINRA Flags:

  • Missing multi-factor authentication (MFA)
  • Excessive administrative privileges
  • No regular access reviews

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. An untested plan is treated as a nonexistent plan.

What FINRA Flags:

  • Incident response plans that were never tested
  • No tabletop exercises or simulations
  • Staff unsure of roles during a security event

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. Without ownership, cybersecurity becomes fragmented and regulators notice.

What FINRA Flags:

  • "IT handles security" with no named leader
  • No reporting to executive leadership
  • No accountability for risk decisions

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

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.

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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.

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FAQs on FINRA Cybersecurity Audits

Answers to common questions about how financial firms can prepare for and pass FINRA cybersecurity audits.

What are the most common reasons financial firms fail FINRA cybersecurity audits?

The most common failures include incomplete or generic written security policies, one-time risk assessments with no follow-up, missing multi-factor authentication, untested incident response plans, and the absence of a named cybersecurity leader. These are all preventable with a structured approach to compliance.

How often should financial firms conduct cybersecurity risk assessments?

FINRA expects cybersecurity risk management to be ongoing, not a one-time activity. Best practice is to conduct quarterly cybersecurity risk assessments and maintain a risk register that tracks identified risks, severity, remediation actions, owners, and timelines.

Does FINRA require multi-factor authentication (MFA)?

While FINRA does not specify exact technical controls, missing MFA — especially on email, remote access, and admin accounts — is consistently cited as a material weakness during audits. Enforcing MFA across all critical systems is a baseline expectation.

What happens if my firm fails a FINRA cybersecurity audit?

Firms that fail audits may face six-figure fines, mandatory remediation requirements, increased follow-up scrutiny, and potential escalation. Proactively addressing gaps before a regulatory review is significantly less costly than responding to findings after the fact.

Do I need a vCSO to pass a FINRA audit?

FINRA does not mandate a specific title, but regulators expect clear cybersecurity ownership, governance, and reporting. A Virtual Chief Security Officer (vCSO) provides this structured leadership in a cost-effective model suitable for firms with 20–50 employees.

How can Netready help my firm prepare for a FINRA audit?

Netready provides quarterly risk assessments, vCSO-level security leadership, MFA enforcement, incident response testing, and ongoing compliance documentation. We help financial firms close gaps before regulators identify them, reducing audit risk and improving overall security posture.