FINRA Releases 2014 Regulatory and Examination Priorities (with Lofchie Comment)
FINRA has issued its 2014 Regulatory and Examination Priorities letter, which highlights significant risks and issues that could adversely affect investors and market integrity this year. The letter addresses topics related to business conduct, fraud, financial and operational concerns, as well as market regulation priorities. Additionally, FINRA has noted that it will update its view on risks throughout the year identified and encourages firms to be dynamic in their assessment of risks.As to suitability issues, which FINRA identifies as one its major concerns, FINRA points to the following products (many of which are interest-rate related) as being of particular concern:
- complex structured products;
- private real estate investment trusts ("REITs");
- frontier funds; and
- interest rate-sensitive securities, including MBS; long-duration debt securities and funds; emerging market debt; municipal securities; and bonds issued by business development companies.
Other areas of regulatory focus identified by FINRA include:
- conflicts of interest;
- cybersecurity;
- qualified plan rollovers;
- IPOs;
- general solicitation in connection with private placements as permitted by the JOBS Act;
- AML;
- the new municipal advisor rules;
- seniors;
- microcap fraud;
- insider trading;
- funding and liquidity risk;
- document management and risk controls;
- accuracy of capital computations;
- auditor independent;
- algo trading and high-frequency trading;
- audit trail integrity; and
- best execution.
Lofchie Comment: It's a long list of priorities. In this regulatory environment, no firm can afford to overlook anything on the list. The list is so diverse in its concerns that the compliance tasks may need to be divided broadly among many parts of a firm as well as among individuals. Although there are any number of aspects of the list that could be singled out for attention, two stand out as indicative of the ever-increasing scope of compliance: (i) issues relating to regulatory capital, such as funding risk and risk controls; and (ii) areas that are technology dependent, which range from issues of cybersecurity to the proper function of trading systems.
See: FINRA Letter; Press Release.