Regulatory Alerts

FINRA’S Regulatory and Examination Priorities

Each year FINRA publishes a “Regulatory and Examination Priorities Letter.” They provide an excellent guide to the compliance issues to which firms should give special attention, and so we have provided hyperlinks to the 2017 and 2016 Letters:

2017 Link: http://www.finra.org/industry/2017-regulatory-and-examination-priorities-letter

2016 Link: http://www.finra.org/sites/default/files/2016-regulatory-and-examination-priorities-letter.pdf

2016 Link for the SEC’s Examination Priorities: https://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2016.pdf

This year’s letter is more sales oriented than those of previous years, including among its topics:

  • High-risk and Recidivist Brokers
  • Sales Practices with Senior Investors
  • Product Suitability and Concentration
  • Excessive and Short-Term Trading of Long-term Products
  • Outside business Activities and Private Securities Transactions
  • Liquidity Risk
  • Financial Risk Management
  • Credit Risk Policies and Procedures

The 2017 Letter

The 2017 Letter highlighted topics such recruitment agreements creating conflicts of interest with clients; risk management problems in allowing traders to value the proprietary positions they control; cybersecurity in light of SEC Regulation S-P (customer privacy); evolving standards of anti-money laundering control, especially with microcap securities; suitability relative to elderly customers; securities offerings under the JOBS Act; Regulation SHO’s closeout requirements; and cross-market and cross-product market manipulation.

The SEC Link for 2016

The SEC has not published an examination priorities letter for 2017, but its letter for 2016 can be found at https://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2016.pdf

The SEC’s expressed concerns are similar to those of FINRA.

Best Use of the Letters

Many of these topics reflect recent SEC or FINRA enforcement actions, which tend to come in waves. So these letters deserve close study. They should also prompt firms to review and consider enhancing their supervisory procedures before the next FINRA or SEC examination.