News & Insights

Finra’s 2022 Report On Examination And Risk Monitoring Program

FINRA has released its 2022 Report on Examination & Risk Monitoring which included new risks to monitor this year. The list includes several categories related to 2021’s meme-stock short-squeeze and its continuing fallout. Included in the report for the first time this year include: Muni Shorts & Fails, Trusted Contacts, Crowdfunding and Portals, and Margin and Intraday Trading. Trusted Contact risks refers to FINRA Rule 4512(a)(1)(F), which requires firms to make reasonable efforts to obtain trusted contact information for customer accounts. This is part of an ongoing effort to protect customers, especially elderly customers, from financial abuse. Muni shorts and fails refers to firms trading municipal securities which can result in taxable substitute interest to customers expecting tax-free transactions. Firms engaging in these trades need to have systems in place to monitor municipal trading.

Risks that came up once again in 2022 include AML, Risk Assessments, Data Loss Prevention, Variable Annuities, and Social Media Influencers. Broker-dealers are required to maintain and enforce a system of Anti-Money Laundering supervision and compliance in accordance with the Bank Secrecy Act. Additionally, firms need to increase their data loss prevention policies because they have continued to fail to encrypt all customer and firm sensitive confidential data. Another risk identified by FINRA is social media influencers and the use of mobile apps because of the continued “gamification” of trading that awoke in 2021.