FINRA Podcast: 2014 Regulatory and Examination Priorities - Part 3, Business Conduct Concerns

FINRA released the third podcast in a five-part series providing an overview of FINRA's 2014 examination priorities. The primary focus of the podcast is on FINRA's additional business conduct priorities. Specifically, it addresses areas of business conduct that include:

• Anti-money Laundering ("AML"): FINRA noted that one emerging trend relates to executing broker-dealers liquidating large volumes of low-priced securities. Due to the nature of the DVP/RVP customer relationship with the executing broker, FINRA found that the source of such low-priced securities is often masked unless the executing broker makes a reasonable inquiry. FINRA also noted a misconception among some executing brokers: the idea that Customer Identification Program ("CIP") requirements do not apply to DVP/RVP customers (who are not otherwise exempt), or that the prime broker is responsible for CIP on those customers.

• Municipal Advisors: The SEC designated FINRA as the examination and enforcement authority for municipal advisors that are regulated by FINRA. Accordingly, FINRA stated, municipal advisory activity will be an area of focus in sales practice exams in 2014.

• Crowdfunding Portals: FINRA proposed rules to streamline the registration and oversight of funding portals to reflect the limited scope of activity that funding portals permit. The proposed rules address a number of topics, including:
  • the membership application process,
  • fraud and manipulation,
  • just and equitable principles of trade, and
  • requirements for funding portals (to ensure that such portals are in compliance with the JOBS Act, and SEC and FINRA rules).

• Senior Investors: FINRA found that a large number of American investors are approaching retirement and control a substantial portion of investable assets. In 2014, FINRA stated, examiners will continue to focus on how firms engage with senior investors, especially with respect to suitability determinations, as well as disclosures and communications. FINRA will also examine firms' policies and procedures to identify and address situations in which issues of diminished capacity may be present.

See: FINRA Podcast.Related news: FINRA Podcast: 2014 Regulatory and Examination Priorities - Part 2: Recidivists, Conflicts, Cybersecurity, Rollovers and Accredited Investors (March 24, 2014); FINRA Podcast: 2014 Regulatory and Examination Priorities - Part 1, Suitability (with Lofchie Comment) (March 14, 2014).