FINRA recently published its 2018 Annual Regulatory and Examination Priorities Letter, which identifies opportunities for firms to improve their compliance, supervisory and risk management policies or programs. The Letter includes areas that FINRA will focus their efforts on in 2018, and can be a template for upcoming examinations. While certain topics continue to appear on the annual letters, new topics are also included in the 2018 letter. As part of the ongoing initiative, FINRA will continue to provide resources for firms to improve in these areas, including measures to increase information sharing among firms and generally making more information available.
Fraudulent activities, for instance insider trading, Ponzi schemes, and other activities that damage the integrity of the market, continue to be an area of focus for FINRA, and improvement for firms. Cybersecurity also remains an on ongoing concern. Sufficient cybersecurity policies and procedures are mandatory, as FINRA will evaluate firms’ programs and their effectiveness at protecting customer information.
Suitability also appears on the list each year. As different investment products become available, the suitability concerns continue to evolve, and FINRA will continue to evaluate the firms’ ability to meet their suitability obligations. For example, proper vetting procedures, due diligence measures, and training. A new area for consideration is FINRA’s focus on “registered representatives recommend[ing] a switch from a brokerage account to an investment adviser account where the switch clearly disadvantages the customer.” FINRA uses the example where “the registered representative recommended that the customer purchase a securities product subject to a front-end sales charge in a brokerage account and then shortly thereafter recommended that account be transferred to a fee-based account.” Firms must have sufficient controls and supervisory mechanisms in place to prevent such activity. In addition, representatives must be trained to avoid making such recommendations.
To further assist firms with their compliance efforts, FINRA will launch several new report cards, which firms and representatives should utilize. This blog includes only a few examples, as the 2018 Letter includes many other areas to consider, which firms should review and implement as part of their compliance, supervisory and risk management programs. These areas are also important when preparing for FINRA examinations.
Finally, the 2018 Letter points out a few new rules and amendments that will be applicable in 2018. One such rule, which was a topic of another blog, New FINRA Rules Address Elderly Abuse, relates to the financial exploitation of customers. Firms should be prepared to take any and all actions necessary to implement these new rules.
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