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January 2nd, 2019
securities
FINRA PUBLISHES SECOND ANNUAL REPORT ON EXAMINATION FINDINGS

FINRA published its 2018 Report on Examination Findings, its second annual report detailing observations from recent examinations of broker-dealer firms that it considers worth highlighting because of their potential significance, frequency, and impact on investors and the markets.  It also describes practices FINRA has observed to be effective in certain circumstances. 

The highlighted observations of the 2018 Report cover suitability for retail customers, fixed income mark-up disclosure, reasonable diligence for private placements, and abuse of authority.  The report also includes a case study that highlights examination findings from a targeted examination of volatility-linked products and a summary of additional observations.

The 2018 Report repeats some of the concerns raised in the 2017 Report, such as product suitability and broker-dealer compliance with FINRA Rule 2111, further highlighting the significance of these issues.  In its observations of suitability for retail customers in the 2018 Report, FINRA notes that firms with sound supervisory practices generally identified risks, developed policies, and implemented controls tailored to the specific features of the products they offered to their customer base.  Specific examples include restricting or prohibiting recommendations of products for certain investors, establishing system-based controls for recommendations of certain products to retail investors, and requiring registered representatives to receive training on specific complex products before recommending them.

We encourage our clients to read the Report on FINRA Examination Findings in detail.  It serves as a useful resource in reviewing compliance and supervisory programs.




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