The Financial Industry Regulatory Authority (“FINRA”) recently published its Risk Monitoring and Examination Priorities Letter (the “Letter”) for 2019 and signaled its intent to expand the scope of its priorities and exam program. Unlike previous years, FINRA’s 2019 Letter took a “somewhat new approach” by identifying materially new areas of emphasis. Admittedly, FINRA will continue to examine longstanding priorities detailed in prior letters, but in adding “Risk Monitoring” to the title to the Letter, FINRA notified the industry it planned to broaden its exam program into three materially new priorities: (1) online distribution platforms, (2) fixed income mark-up disclosure, and (3) regulatory technology. These three new areas of focus are buttressed by other highlighted items in FINRA’s 2019 Letter: sales practice risks, operational risks, market risks, and financial risks. At the same time, FINRA cautioned industry recipients that “[u]nlike previous Priorities Letters, we do not repeat topics that have been mainstays of FINRA’s attention over the years.” Thus these “mainstays” are also given consideration. The following briefly summarizes many of the important and emerging issues highlighted by FINRA:
Mainstay Areas of Exam Focus
FINRA’s 2019 Priorities Letter makes clear its exams will continue to focus on what it terms “mainstay” topics. In fact, FINRA highlights this admonition in the first paragraph of its 2019 Letter. And as to be expected protection of securities customers will continue to be a bedrock exam principle. Thus protections for the customer vis-à-vis the transaction process or relative to the strength of the firm remain key areas of inquiry. Firms should focus then on compliance obligations related to suitability, complex products, mutual fund and variable annuities share classes and break points; use of margin; OBAs and especially disclosures about such activities; private securities transactions; private placements; communications with the public; AML; best execution; fraud (including microcap fraud), insider trading and market manipulation; net capital and customer protection; trade and order reporting; data quality and governance; recordkeeping, risk management and supervision related to these and other areas.