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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.