Top Priorities for Securities Regulators in 2016
The Financial Industry Regulatory Authority (FINRA) recently released its annual list of regulation and examination priorities for 2016. As usual, there are many recurring themes from previous years’ lists, with a few new items thrown in for good measure. Here are some of the things FINRA will be focusing on this year when it examines its member firms:
Brokerage Firm Culture
Are control functions valued within the firm?
Do the firm and its control persons tolerate policy breaches?
Is the firm proactive in identifying risks?
Are the supervisors effective role models of the firm’s policies and procedures?
Is the firm’s compensation plan for its broker structured to mitigate conflicts of interest?
Are the firm’s research analysts inappropriately involved in the firm’s investment banking activities?
Is the firm taking steps to minimize the inappropriate disclosure of information within and outside the firm?
Does the firm appropriately supervise, control, and validate its traders’ pricing of proprietary illiquid assets?
Has the firm developed and implemented adequate cybersecurity measures to protect the confidentiality and integrity of customer information?
What is the firm’s incident response protocol?
Have staff received sufficient training in data loss management?
Are there shortcomings in the firm’s management of its technology systems?
Is the firm’s technology sufficient to accurately run any automated surveillance systems?
Is the firm performing sufficient due diligence and monitoring of the providers of its outsourced operational services?
Is the firm improperly outsourcing functions that are required to be performed by registered persons?
Suspicious Activity Monitoring
Is the firm accurately monitoring and reporting suspicious activity detected by the firm’s automated AML (anti-money laundering) surveillance systems to regulators?
Is the firm monitoring both money movements and trading activity?
Does the firm have procedures in place to identify suspicious trading activity in microcap stocks?
Are the firm’s recommendations suitable for its customers, especially the recommendations of complex, speculative, and alternative products?
Do the firms’ brokers adequately understand the products they are recommending, especially higher-risk offerings such as high-yield and speculative bonds, alternative mutual funds, structured products, synthetic exchange traded funds (ETFs), non-traded REITs, and securities backed lines of credit?
Seniors and Vulnerable Investors
Does the firm have adequate processes in place to safeguard its senior and vulnerable customers from exploitation and abuse by their brokers?
Is the firm monitoring the accounts of senior investors for red flags that may indicate possible financial abuse, such as overly aggressive investments, or unusual movement of assets outside of the account?
These are only some of the areas of concern FINRA identified in its letter. FINRA’s Regulatory and Examination Priorities Letter may be read in its entirety here.