FINRA and SEC Examination Priorities

FINRA announced their exam priorities on January 4th for 2017.  It probably isn't surprising that FINRA is very interested in how firms are supervising brokers that have a checkered past.  Researchers reported in 2016 that certain firms have become havens for a large number of reps that have previously run afoul of FINRA rules.   FINRA noted that protecting seniors from buying inappropriate investments remains a priority as well.

Interestingly, FINRA is going to initiate electronic, off-site reviews to supplement their traditional on-site cycle examinations.  FINRA will be making targeted and limited information requests from firms that are not currently scheduled for a cycle exam in 2017. The information supplied will then be reviewed off site.

Below are many of the items mentioned in the annual letter.

  • Hiring, monitoring and supervisory controls of high-risk and recidivist brokers.
  • Firm controls of sales practices as they pertain to recommendations made to senior investors for speculative or complex products.
  • Firm monitoring of accounts for excess concentration in one product or type of risk.
  • Excessive and short-term trading of long-term products.
  • Firm programs to mitigate cybersecurity risks.

On January 12th, the SEC announced it's exam priorities for 2017.  Probably the most interesting item is the SEC's interest in Electronic Investment Advice.  They plan to look at advisors who are incorporating robo-advisory services to see how they are formulating investment recommendations, protecting client data, and marketing such services.  The SEC's priorities mirror those of FINRA in their focus on protecting vulnerable seniors and seeing how firms are supervising reps with a "track record of misconduct".

The items cited in the SEC's annual letter include:

  • Supervision, marketing and data protection with respect to robo-advisory services.
  • Review of how advisors determine suitability of wrap fee programs for clients.
  • Review of suitability determination and sales practices related to ETFs with niche strategies.
  • Compliance oversight and controls of recidivist representatives.
  • Review whether conflicts of interest exist in the recommendation of certain share classes of mutual funds.