- Second annual report on examination findings, resource for firms from FINRA360.
- Follows 2017 report, highlighted cybersecurity, OBA, best execution.
- Observation from recent exams, selected for significance, frequency, and impact.
- Highlight exam findings on suitability for retail customers, fixed income mark-up
disclosures, reasonable diligence for private placements, and abuse of authority.
- Summary of additional observations, AML, confirmations, best execution, TRACE.
- Case study of findings, Apr. 2018 sweep of volatility-linked products.
Suitability for Retail
- Concentration in complex structured notes, sector-specific investments, or illiquid securities, such as non-traded REITs, that resulted in significant customer losses.
- Some firms did not establish or enforce adequate supervisory system reasonably
designed to identify or prevent potentially excessive trades in customer accounts.
- Recommendations for variable annuity did not comply with suitability obligations.
- Failure to enter information in firm order-entry system, inaccurate mark-up/down.
- Did not give disclosure to customers, wrongly identified accounts as institutional.
Private Placement Diligence
- No additional research done on new offerings, relied on diligence in prior offering.
- Nor independently evaluated third party conclusions, respond to major concerns
in reports, address concern regarding issuer or offering outside context of report.
Abuse of Authority
- Exercised discretion in customer account, no prior authorization or firm approvals.
- Mismarked order ticket, not comply with security threshold limitation, restrictions.
- Some representatives convinced senior investors, to establish trusts, name them
trustee or co-trustee to take control of the assets, and direct funds to themselves.