Financial professionals handling compliance keep abreast with changes in the regulatory landscape to effectively allocate resources. At the start of each year, regulatory agencies Financial Industry Regulatory Authority and the Securities and Exchange Commission publish their priorities. FINRA’s recently released Risk Monitoring and Examination Priorities Letter states emerging issues as well as ongoing concerns for the upcoming year. In an introductory note, Robert Cook explains that this year’s letter more broadly relays FINRA’s priorities for risk monitoring with a more pronounced focus on new issues. Firms can use the information contained within this letter to ensure that their compliance, supervisory and risk management programs reach FINRA’s standards. Distinct from earlier times, the FINRA letter focuses on explaining new issues and risk analysis.
The main new issues on the regulatory agency’s radar are the firm’s involvement with online distribution platforms, fixed income mark-up disclosure, and regulatory technology. Specifically, FINRA is concerned with how firms meet AML requirements, supervise communications with the public and conduct suitability analysis when involved with the distribution of securities on online distribution platforms. FINRA plans to evaluate the risks of excessive or undisclosed compensation arrangements between firms and issuers for offerings exempt from registration under Regulation A. Furthermore, FINRA intends to assess how firms handle risks with sales of offerings under Regulation D to non-accredited investors. FINRA expects firms to follow FINRA rule 2232 and MSRB Rule G-15 to comply with mark-up or mark-down disclosure obligations on fixed income transactions. As more firms use regulatory technology for compliance, FINRA plans to examine the efficiency and risks involved.
While this year’s letter pays more mind to new issues, FINRA briefly restates ongoing problems that have already been named as top priorities. Notably, FINRA mentions suitability determinations, outside businesses activities, and private securities transactions; private placements; data quality and governance; communications with the public; trade and order reporting; anti-money laundering (AML); net capital and consumer protection; best execution; fraud; insider trading and market manipulation; record keeping, risk management and supervision related to these and other areas. As per usual, FINRA will be mindful of how firms supervise and respond to associated persons with flawed disciplinary records. In the rest of the letter, FINRA categorizes the other concerns into sales practice risks, operational risks, market risks, and financial risks.
Major sales practice risks for FINRA concern overall investor suitability as well as the protection of senior investors. In terms of suitability, FINRA plans to pay more mind to certain aspects such as the increasingly complex and novel exchange-traded fund market. FINRA will evaluate firms’ existence of clearly defined policies to protect senior investors, especially in regard to amendments FINRA Rule 4512 and FINRA Rule 2165. As far as operational risks, FINRA mentions firms’ compliance with FinCEN’s Customer Due Diligence Rule and the supervision of the digital assets’ businesses. When discussing market risks, FINRA focuses on best execution, market manipulation, market access, short sales, and short tenders. FINRA ends the letter with their plans to evaluate how firms handle credit risk, funding and liquidity planning.
Securities regulatory attorneys strongly urge broker-dealers to carefully evaluate how FINRA’s mentioned risks are handled in their current compliance, supervisory and risk management programs. Financial professionals in need of help with SEC subpoena compliance, FINRA OTR interviews or any other securities industry regulatory issue should consult an attorney. Our highly rated securities regulatory and compliance attorneys can provide you with the best legal assistance. Also, our securities attorneys also have experience representing investors in claims related to suitability, supervision, unauthorized trading, misrepresentations, and other fraudulent activity. Contact our securities law firm today to get a free consultation with a member of our New York team.