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On January 5, 2016, the Financial Industry Regulatory Authority (“FINRA”) released its 2016 Regulatory and Examination Priorities Letter (the “Letter”). Within the Letter, FINRA identifies challenges for broker-dealers that can be categorized by broad issues and other areas of focus in 2016. A number of the areas were also cited in last year’s letter. Below is a summary of the areas that FINRA has prioritized for this year.
Firm Culture: This was also a focus in 2015; however, FINRA notes that it will formalize its assessment of firm culture based on the following areas:
The above areas will help FINRA assess a firm’s overall “Culture of Compliance.”
Supervision, Risk Management, and Controls: FINRA reminds broker-dealers of their obligation to “maintain a system to supervise the activities of their associated persons to achieve compliance with securities laws and regulations and FINRA’s rules.” In addition, FINRA identifies concerns with the following:
Liquidity: FINRA notes that firms’ failures to manage liquidity have been the cause for “systemic crises.” In addition, FINRA will focus on the adequacy of liquidity planning and controls for firms that engage in high-frequency trading. The Letter highlights the practices outlined in Regulatory Notice 15-33 for broker-dealers’ consideration of liquidity needs, particularly stress-testing.
Sales Practices, Operations, and Internal Controls: Instead of focusing solely on specific products, FINRA includes several areas of focus surrounding sales practices in the Letter, including the following:
Sales Practices – Products: As in other years, FINRA has outlined several products that may inherently pose risks to investors based on their complexity. For 2016, FINRA has noted the following products:
Examination priority letters have been an essential source to guide broker-dealers on significant areas of regulatory risk since FINRA began publishing these notices. This year, FINRA has addressed a wide variety of concerns in broad areas as well as very specific topics. We encourage all FINRA member firms to review the Letter in its entirety to determine how the examination priorities impact their compliance and supervisory programs.
Please contact your ACA consultant or Dee Stafford in the Los Angeles office at (310) 322-8840 for more information or guidance regarding the implications of FINRA’s 2016 Regulatory and Examination Priorities Letter.