- Highlights priorities, identifies areas of ongoing concern, to help firms to assess
areas relevant to business, prepare for examinations, have adequate monitoring.
- Addresses older risks from sales practice; hiring, supervision of APs with history.
- Including cybersecurity; fraud, insider trading, and manipulation across markets.
- FINRA also issued a podcast on the annual priorities letter entitled 'a fresh take'.
- Online distribution platforms; comply with FinCEN customer due diligence (CDD).
- Compliance on mark-up/mark-down disclosure obligation on fixed income trades.
- New approach highlighted those topics that will be materially new areas of focus.
- Sharper focus on emerging issues to help firms determine if relevant to business.
- Greater use of distribution of securities through online platforms, in reliance on
Rule 506(c) of Reg. D to accredited investors, Reg A under securities act as well.
- Some platforms owned, operated by dealers, others by unregistered firms using
FINRA firms as selling agents, or brokers of record, custody, escrow, back-office.
Sales Participation on Platform
- FINRA concerned firms act as if were not involved in distributing securities when
it seemed that they were handling customer accounts, funds, get compensation.
- Will assess how firms conduct, reasonable basis and customer-specific suitability
analyses, supervise public communications, AML requirement and disclosure risk.
- View action to ensure no material information is omitted, misleading, fraudulent.
- For Reg D risk of sales to non-accredited investors, non-compliant escrow terms.
- Reg. A excessive, undisclosed compensation arrangements, by firms and issuers.
- Rule on mark-up or mark-down disclosures for fixed income trades.
- Effective on May 14, 2018, FINRA developed mark-up and down analysis reports.
- Firms can use report for mark-up summary, trade details, graphic trend analysis.
- Firms use innovative regulatory technology (RegTech) tools to assist compliance.
efficiency, and make risk-based, FINRA will engage to understand what and how.
- Study risks, challenges or regulatory concerns, supervision/governance systems
third-party vendor management, safeguarding customer data, and cybersecurity.
- Suitability remains a FINRA priority, specific 2019 focus on deficient quantitative
suitability, controls; over concentration in illiquid securities; time-horizon issues.
- Exchange-traded product (ETP) market continues to grow with novel and highly
complex products, to check suitability, risk disclosure obligations complied with.
- Concerned with securities products that package leveraged loans, CLOs to retail.
- Focus on senior investor risk of exploitation, compliance with rules.
- Monitor APs' outside business activity, private securities transactions, misleading
use of names to get funds from investors that may be confused by identification.
- Supervision of digital assets business, FINRA encourages firms to notify any plan.
- Review membership and examination process covering digital assets, compliance.
- Customer due diligence rule compliance in effect since May, identify
beneficial owners of legal entity client, ongoing monitoring of suspicious activity.
- Market manipulation monitoring by plan to enhance FINRA surveillance capability.
- Compliance with market access Rule 15c3-5 will be monitored by controls, limits.
- Short sales and tenders are a focus, legitimacy, independence of trades, reports.
- Review policies and procedures to identify, measure, and managing, credit risks.
- Especially if sizable, done in a period of high volatility, some trades may increase.
- If identify and address relevant risks, when they extend credit to their customers.
- Firms’ liquidity planning, review whether have a reasonable process, to regularly
assess the adequacy of liquidity pools, and updated their stress test assumptions.