The U.S. Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) and the Financial Industry Regulatory Authority (FINRA) recently published their examination priorities (together, the Examination Priorities) for the 2020 calendar year.1 In general, the 2020 Examination Priorities continue recurring themes from recent prior years.
OCIE’s 2020 Examination Priorities for broker-dealers and investment advisers include the protection of retail investors (including compliance with new standard of care requirements and interpretations), cyber and information security risks, anti-money laundering compliance, firms engaging in the digital asset space and the provision of electronic investment advice.
FINRA’s 2020 Examination Priorities for member firms include those generally identified by OCIE for registered broker-dealers, as well as cash management and bank sweep programs, initial public offerings, liquidity management, trading authorizations and order routing and vendor display rule requirements, among others.
This post summarizes selected aspects of the Examination Priorities that may be of particular interest to broker-dealers and investment advisers. As always, firms should use the 2020 Examination Priorities to review their compliance and supervisory procedures carefully and make any necessary revisions. Firms also should be prepared to explain their compliance and supervisory policies in these areas in their upcoming SEC and/or FINRA examinations, as applicable, and provide documentation of relevant reviews.
On January 17, the Financial Industry Regulatory Authority (FINRA) released its annual Risk Monitoring and Examination Priorities Letter (Letter), which identifies topics that FINRA will focus on in 2019. Unlike in previous years, this Letter primarily discusses new topics and priorities in areas of ongoing concern while not repeating topics that have been at the center of FINRA’s attention over the years. FINRA notes, however, that while traditional topics such as cybersecurity,1 recidivist brokers and anti-money-laundering (AML) may not be discussed extensively in the Letter, FINRA will nonetheless review firms for compliance regarding these areas of focus.
As always, firms should use the Letter to review their compliance and supervisory procedures carefully and make any necessary revisions. Firms also should be prepared to explain their compliance and supervisory policies in these areas in their upcoming FINRA examinations and provide documentation of relevant reviews. The following is a discussion of some of the more salient points of the FINRA Letter. (more…)
On January 5, the Financial Industry Regulatory Authority (FINRA) released its annual Regulatory and Examination Priorities Letter (Letter) to highlight risks that FINRA believes could adversely affect investors and market integrity. This year’s Letter differs from those in the past in focusing on three broad, principle-based concerns in addition to the usual list of narrowly focused areas that examiners will certainly review. These broad areas are 1) culture, conflicts of interest and ethics; 2) supervision, risk management and controls; and 3) liquidity. The discussion is helpful because it explains FINRA’s overarching concerns, philosophy and its potential basis for pursuing enforcement actions. Firms should read this discussion carefully and internalize its principles. Firms should be able to document and demonstrate to FINRA their appropriate regulatory and ethical culture and how they actively identify and manage potential conflicts of interest. Likewise, in today’s highly automated and data-dependent markets, firms must be able to demonstrate that their procedures and policies related to cybersecurity, technology management and data quality are up to date, adequately resourced and strictly followed.