FINRA released the 2015 Regulatory and Examination Priorities Letter which highlights significant risks and issues that could affect investors and market integrity adversely.
According to FINRA, firms face a number of recurring challenges, including (i) putting customers’ interests first, (ii) firm culture, (iii) supervision, risk management and controls, (iv) product and service offerings, and (v) conflicts of interest. FINRA stated that addressing these challenges will “enable firms to get ahead of many of the concerns that FINRA raises in this letter.”
One “particularly troubling” issue, FINRA asserted, is the increasing number of situations in which firms failed repeatedly to provide timely responses to information requests in connection with examinations and investigations.
FINRA went on to describe a number of sales practice concerns for firms to monitor, including the following:
- products, such as interest-rate-sensitive fixed income securities and variable annuities;
- FINRA’s new supervision rules (FINRA Rules 3110, 3120, 3150 and 3170), which became effective on December 1, 2014;
- individual retirement account rollovers and other “wealth events”;
- excessive trading and concentration controls;
- private placements;
- high-risk and recidivist brokers;
- sales charge discounts and waivers;
- senior investors;
- anti-money laundering; and
- municipal advisors and securities, including municipal advisor registration and minimum denomination bonds.
FINRA also discussed financial and operational priorities for 2015, such as funding and liquidity, sales to customers involving tax-exempt or FDIC-insured products, cybersecurity and outsourcing. FINRA also noted a number of market integrity issues on which it intends to focus in 2015, including the following:
- supervision and governance surrounding trading technology;
- abusive algorithms;
- cross-market and cross-product manipulation;
- order routing practices, best execution and disclosure;
- market access; and
- audit trail integrity.