FINRA’s 2017 Examination Findings

Recently, the Financial Industry Regulatory Authority (“FINRA”) released its 2018 Regulatory and Examination Priorities Letter.   The letter details the topics that FINRA will focus on during the 2018 calendar year.  Firms should review the letter and use it as a guide in making their compliance programs more robust and audit ready for the next examination cycle.  Here, we will discuss a few of the topics that FINRA highlighted.

Fraud

FINRA will continue to focus on fraud such as insider trading, issuer fraud, and Ponzi schemes. A particular focus will be on schemes that target senior investors such as microcap fraud schemes.  FINRA has suggested that Firms should be attentive to brokers who show a new interest in buying microcap stocks as there have been many cases in which senior investors have been taken advantage of using such products.

Business Continuity Planning

Last year, many regions were affected by hurricanes.  The impact of those hurricanes is a reminder to firms of the importance of their Business Continuity Plan (BCP).  As such, during 2018, FINRA will review firms’ BCPs and focus on the ways in which the plans have been implemented.

Cybersecurity

Of course, cybersecurity continues to be hot topic in the industry.  Over the last year, FINRA has addressed cybersecurity risks and attempted to assist firms in designing their cybersecurity program by releasing a cybersecurity checklist.  In 2018, FINRA will continue to focus on the effectiveness of firms’ cybersecurity programs to protect sensitive information.

Anti-Money Laundering

Firms should ensure that their AML programs consists of policies and procedures that are designed to detect and report suspicious activity.  As required, the testing of the program should be by an independent party.  These are two areas that FINRA noted that it has continued to identify concerns.

Suitability

Firms should ensure that their registered representatives are trained on the products that the Firm offers so that their reps will be equipped to provide suitable recommendations. FINRA recognizes that the complexity of products available continues to increase.  As a result, FINRA will review how firms identify products that are subject to new product vetting, the vetting process itself, and the supervisory systems and controls firms put in place to ensure personnel are appropriately educated and trained.

Initial Coin Offerings and Cryptocurrencies

Cryptocurrency has made many headlines lately as the new hot product.  The industry is still trying to understand all the intricacies of cryptocurrencies.  FINRA has noted that it will keep a close watch on any developments in this area.

Conclusion

The topics discussed above are only a few of the topics highlighted by FINRA.  The letter discusses many other topics such as technology governance, liquidity risk, use of margin, best execution, and report cards.  As mentioned, firms should read the letter and use it as a guide in addressing the risk areas identified. To read the letter, see 2017 Examination Findings Report.

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