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The Financial Industry Regulatory Authority (FINRA) today released its 2015 Regulatory and Examination Priorities letter highlighting significant risks and issues that, if not properly addressed, could adversely affect investors and market integrity. This year's letter, the tenth edition of providing such guidance to firms, focuses on key sales practice, financial and operational, and market integrity matters, and identifies challenges in five key areas that should be addressed to get ahead of the concerns raised in the letter.
Richard G. Ketchum, FINRA's Chairman and CEO, said, "In the decade since publishing the first exam priorities letter, there has been tremendous change in broker-dealer operations, the markets and the regulatory landscape. While we have seen some firms make great progress in keeping up with these changes, more attention needs to be paid to addressing specific challenges we've pinpointed. Doing so will provide the building blocks for a stronger culture of compliance, while indifference to or inaction on these issues will only serve as stumbling blocks toward robust compliance and supervision programs. While this letter is designed to provide guidance for firms to adapt and review their business in light of the issues raised each year, those programs that strive to go beyond business as usual will be better positioned to protect investors and preserve the integrity of the market."
FINRA notes that it continues to observe shortcomings in these five key areas of broker-dealer activity.
- alignment of firms' interests with those of their customers;
- standards of ethical behavior;
- development of strong supervisory and risk management systems;
- development, marketing and sale of novel products and services; and
- management of conflicts of interest.
In the letter, FINRA identifies specific areas of concern, including the sale and supervision of interest-rate-sensitive and complex products, such as alternative mutual funds, as well as controls around the handling of wealth events in investors' lives, management of cybersecurity risks and treatment of senior investors. FINRA also notes its focus on high-risk brokers and removing bad actors who prey on vulnerable investors from the securities industry in an expeditious manner.
FINRA Market Regulation conducts comprehensive surveillance across 99 percent of the market for U.S.-listed equities and approximately 65 percent of the options market. Market Regulation will focus on a range of key issues, including:
- abusive trading algorithms;
- high-frequency trading;
- cross-market and cross-product manipulation;
- order routing practices, best execution and disclosure; and
- market access controls.
FINRA will continue to update firms on additional areas of increased concern through Regulatory Notices, reports on special initiatives and sweeps letters that focus on specific themes throughout the year.
