News & Insights

Highlights From The Finra 2020 Risk Monitoring And Examination Priorities Letter

FINRA released its 2020 Risk Monitoring and Examination Priorities Letter.  The Letter addresses emerging priorities for FINRA’s risk monitoring, surveillance, and examination programs in the coming year.

New for this year is a focus on Regulation Best Interest and Form CRS.  On June 5, 2019, the SEC adopted Regulation Best Interest which establishes a “best interest” standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendation of types of accounts.  As part of the rulemaking package, Form CRS is included and requires broker-dealers to provide a brief relationship summary to retail investors.  In the first part of the year, FINRA will review firms’ preparedness for Regulation Best Interest to gain an understanding of implementation challenges they may face.  The date on which compliance is required for these rules is June 30, 2020, and after this date, FINRA will examine firms’ compliance with Regulation Best Interest, Form CRS, and related SEC guidance and interpretation.

Among other issues identified in the 2020 priorities letter are communications with the public.  In addition to ongoing reviews for compliance with the core obligations regarding this topic, FINRA will also focus on the areas of private placement retail communications and communications via digital channels.  In terms of private placement retail communications, FINRA will review how firms review, approve, supervise, and distribute retail communications regarding private placement securities via online distribution platforms, as well as traditional channels.  Focusing on communications via digital channels, FINRA acknowledges potential challenges to firms’ ability to comply with obligations related to the review and retention of such communications, as firms, registered representatives, and customers use a broad array of digital communication channels.  Therefore, FINRA will be reviewing firms’ use and supervision of these channels.

We recommend that our broker-dealer clients review the FINRA Priorities Letter in detail.  FINRA’s discussion of new areas of focus in the Letter should serve as a useful resource in reviewing compliance and supervisory programs throughout the year.