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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.