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FINRA released its Regulatory and Examination Priorities Letter for 2017. The letter provides information about areas FINRA plans to review in its 2017 exams based on observations from their regulatory programs, as well as input from various stakeholders, including broker dealers, other regulators and investor advocates.
According to its letter, FINRA will be increasing its focus on high-risk and recidivist brokers. This year’s priorities include a three-part outline for handling investigation and enforcement in this area.
First, FINRA established an examination unit specifically to deal with “brokers who may pose a high risk to investors.” Second, FINRA will review supervisory procedures for hiring and/or retaining such brokers. Third, FINRA will evaluate branch office inspection programs related to the supervisory procedures. FINRA will specifically look at the use of unapproved email addresses, comments made on social media or broadcast platforms, and registered representatives’ own websites.
The focus on senior investors, which was highlighted in years past, will continue to be a priority for FINRA in 2017. This year, FINRA intends to focus on the suitability of recommendations to purchase complex products that may provide a higher yield than current rates on more generic securities. Pump-and-dump schemes involving microcap stocks will also be a priority, as FINRA notes the incident of these schemes using “boiler room” tactics to target elderly investors has continued to increase over the last two years.
Other new priorities mentioned in the letter include the following topics: tick size pilot program, trading examinations, fixed income securities surveillance program, excessive trading and concentration controls of short term products, financial risk management, credit risk policies, customer protection and segregation of client assets, and social media and electronic communications retention and supervision. Non-traded REITs and Direct Participation Programs will also continue to be a focus, with Exchange Traded Products and Business Development Corporations getting added to the mix.
We urge our clients to review the FINRA Priorities Letter for 2017 in greater detail. We also hope it will be useful in reviewing compliance and supervisory programs and framing issues to address through internal training and communications throughout the year.