Shortly before the SEC announced its 2017 exam priorities, FINRA announced its own priorities. On Jan. 4, 2017, FINRA released its Regulatory and Examination Priorities Letter, which clearly reflects its coordination with the SEC's efforts. Given the increasing overlap of broker-dealer regulation onto investment advisers, we felt it important to highlight this letter for you.
As we've noted with respect to the SEC's priorities list, a key question or issue at this point is the potential impact of the new Trump adminstration's pronouncements regarding a federal hiring freeze and freeze on new regulations. It's important to note that FINRA is not a federal agency. It derives its revenues from broker-dealer members and overall direction--to some degree--from the SEC. Accordingly, broker-dealers and advisers are well-advised to pay attention to the highlighted areas as they also represent key business and compliance risks.
FINRA's 2017 letter repeats many of the same themes from prior years and emphasizes the basics of "blocking and tackling" in the words of FINRA's CEO and President, Robert Cook.
Key areas of focus:
- HIgh risk brokers and rescidivists
- Sales practices re: Senior Investors, Product Suitability and Concentration, Excessive and Short-term Trading of Long-term Products, Outside Business Activities and Private Securities Transactions and Social Media and Electronic Communications Retention and Supervision
- Financial risks of broker-dealers: Liquidity Risk, Financial Risk Management, Credit Risk Policies, Procedures and Risk Limit Determinations Under FINRA Rule 4210
- Operational risks: Cybersecurity, Supervisory Controls Testing, Customer Protection/Segregation of Client Assets, Regulation SHO – Close Out and Easy to Borrow, Anti-Money Laundering and Suspicious Activity Monitoring, Municipal Advisor Registration
- Market Integrity: Manipulation, Best Execution, Audit Trail Reporting Early Remediation Initiative and Expansion, Tick Size Plot (basically a huge data collection effort), Market Access Rule, Trading Using Alternative Trading Systems and Small Firm Trading, Fixed Income Securities Surveillance Program
FINRA's reach is broad!
- FINRA's Letter: http://www.finra.org/industry/2017-regulatory-and-examination-priorities-letter
- Stradley Ronon's review of the letter: http://www.stradley.com/insights/publications/2017/01/securities-lit-and-enforcement-alert-jan-2017