News & Insights

Highlights From The Finra 2019 Risk Monitoring And Examination Priorities Letter

FINRA released its 2019 Risk Monitoring and Examination Priorities Letter.  Compared to previous years, this Letter takes a novel approach by highlighting those topics that will be materially new areas of focus for FINRA’s risk monitoring and examination programs this year.  The Letter also identifies areas of ongoing concern that FINRA will continue to review.

FINRA’s new highlighted areas of focus are online distribution platforms, fixed income mark-up disclosure, and regulatory technology.  FINRA will evaluate how firms conduct their reasonable basis and customer-specific suitability analyses, supervise communications with the public, and meet Anti-Money Laundering requirements for online distribution platforms.  FINRA will also review firms’ compliance with their mark-up or mark-down disclosure obligations on fixed income transactions with customers pursuant to amendments to FINRA Rule 2232 and MSRB Rule G-15, which became effective May 14, 2018.  FINRA will engage with firms to determine how they are using innovative regulatory technology tools to enhance their compliance, including those efforts related to supervision and governance systems, third-party vendor management, safeguarding customer data, and cybersecurity.

The areas of ongoing concern that firms should expect FINRA will review are sales practice risks, operational risks, market risks, and financial risks.  Specific areas discussed in the Letter in greater detail are obligations related to suitability determinations, including with respect to recommendations relating to complex products; mutual fund and variable annuities share classes; protection of senior investors; outside business activities and private securities transactions; firms’ best execution decision-making; and risks related to associated persons with problematic regulatory history.

We recommend that our broker-dealer clients fully review the FINRA Risk Monitoring and Examination Priorities Letter.  We hope the Letter’s focus on materially new issues, as well as ongoing concerns, will help identify priorities relevant to our clients’ businesses for use in reviewing compliance, supervisory, and risk management programs.