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February 1st, 2018
securities
HIGHLIGHTS FROM THE FINRA 2018 REGULATORY AND EXAMINATION PRIORITIES LETTER

FINRA released its annual list of Regulatory and Examination Priorities for 2018.  FINRA will continue its focus on high-risk and recidivist brokers in terms of rulemaking initiatives and examinations. This year’s priority includes strengthening the current operation, while becoming more efficient.  

The focus on senior and unsophisticated investors, which was highlighted in years past, will continue to be a priority for FINRA in 2018.  This year, FINRA intends to continue their focus on recommendations for speculative or complex products by high-risk brokers to investors who may not have the sophisticated or experience necessary to enter into such a transaction.  FINRA will also continue to focus on registered representatives who conduct approved private securities transactions by raising funds from investors they serve away from their firm. FINRA notes a continued effort will be made to asses the firm’s ability to monitor the proceeds and whether registered representatives make adequate disclosures about their interests.

Other new priorities mentioned include a priority to review and evaluate the adequacy of firms’ programs, policies, and procedures on following topics: business continuity planning, customer protection and verification of assets and liabilities, technology management, cybersecurity, anti-money laundering (AML) programs, liquidity risk planning, short sales transactions, suitability obligations, disclosure and supervisor practices related to margin loans, securities backed lines of credit (SBLOC), manipulation surveillance, best execution obligations, and alternative trading system surveillance.  Report cards will also continue to be a focus, with several new report cards being added to assist firms with their compliance efforts. The following report cards will be added in 2018: auto execution manipulation, alternative trading system cross manipulation, and fixed income mark-up.

In addition to both new and continued priorities, FINRA highlighted significant new rules scheduled to become applicable in 2018. Most notably, FINRA Rule 2165 and amendments to FINRA Rule 4512 will become effective February 5, 2018. FINRA Rule 2165 permits members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers. The amendments made to FINRA Rule 4512 concern customer account information. The amendments require members to make reasonable efforts to obtain the information for a trusted contact person for a non-institutional customer’s account.

We urge our clients to review the FINRA Priorities Letter in detail.  It should be useful in reviewing compliance and supervisory programs throughout the year.

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