FINRA Podcast: Regulatory and Examination Priorities for 2015 - Part 1

FINRA issued the first in a six-part series of podcasts about its Regulatory and Examination Priorities for 2015, as highlighted in FINRA's Annual Letter to Firms. It also delineated five recommended areas in which to improve compliance, as listed in the outline that follows.

Customers' Interests First

• According to FINRA, certain firms do not put the interests of their customers first, which leads ultimately to lasting consequences for especially vulnerable investors. FINRA suggested that firms can serve their customers best and reduce regulatory risk by aligning their own interests with those of their customers.

Positive Firm Culture

• FINRA stressed the role of executives in developing a positive firm culture, which they can do by actively promoting a proper business environment, high standards of ethical behavior and an aligned incentive structure. According to FINRA, a good firm culture and approach to ethics also can be maintained by preventative measures, such as avoiding undue emphasis on short-term profits or rapid growth without concern for controls.

Supervision, Risk Management and Controls

• FINRA highlighted three "essential factors" in creating and sustaining a positive firm culture and protecting the customer from deliberate or accidental harm: supervision, risk management and controls. FINRA explained that these factors must be achieved by creating robust processes around basic functions, as well as proactive supervisory programs and controls.

Product and Service Offerings

• FINRA acknowledged that the introduction of new products and services remains a "regulatory flashpoint" due to issues such as product complexity, market opacity, insufficient or generic disclosure, and the inadequate training of salespeople about certain products. In order to address these issues, FINRA recommend that firms review new products, assess reasonable basis and customer-specific sustainability prior to selling a product or service, and permit wealth management professionals to make independent decisions about the products and services that are best for their customers.

Monitoring Conflicts of Interest

• FINRA explained that conflicts of interest, such as the self-monitoring and self-reporting of suspicious trading, or the offer of favorable research in exchange for potential investment banking business, can be avoided by creating positive fee and compensation structures.

See: Transcript of Podcast; Listen to Podcast here.See also: FINRA Regulatory and Examination Priorities Letter.Related news: FINRA Releases 2015 Regulatory and Examination Priorities Letter (January 6, 2015).