FINRA Chairman and CEO Ketchum on the Crisis of Confidence in the Markets (with Lofchie Comment)

FINRA Chairman and CEO Richard G. Ketchum delivered a speech regarding the crisis of confidence in the markets at the FINRA Annual Conference and various steps that the regulators were taking, and that firms should take, to restore confidence.

Chairman Ketchum began by discussing changes made to FINRA's regulatory program. He proclaimed that the 2013 Risk Control Assessment survey would become a central part of FINRA's risk-based examination program. Because of this, he encouraged firms to complete the survey. He said that the FINRA would be approving its membership application program, including the portion of the program relating to approval of new business lines for existing firms. He said that FINRA was improving its surveillance, against "threats" and also to detect illegal trading activities.

As to advice to member firms, he said that they must move beyond a culture of compliance to one of "risk management." This would require greater diligence on new products, increased surveillance of customers, and coordination between a firm's legal, risk and compliance functions.

Regarding investors, he cautioned as to putting investors chasing yield into illiquid products or to products that may lose a lot of value if rates should rise. He also delivered a particular caution that the sale of structured products take account of investors' needs and of any potential conflicts of interest.

Lofchie Comment: This is one of a number of speeches that Chairman Ketchum has given in which he has cautioned firms to examine their processes with regard to the sale of debt securities and structured products. See, e.g., FINRA Chairman and CEO Ketchum Speech: Primarily on Suitability and Structured Products (with Barrentine Comment); FINRA Chairman and CEO Ketchum on Consumer Protection (with Lofchie Comment and Suggestion).

See: Addressing the Crisis of Confidence in the Markets.