Paul A. Lieberman
Partner
732-568-8366 plieberman@sh-law.comAuthor: Paul A. Lieberman|March 10, 2021
On February 1, 2021, the Financial Industry Regulatory Authority (FINRA) published its “Report on FINRA’s Risk Monitoring and Examination Activities” (Report) providing insights of its regulatory operations. In its News Release, FINRA stated that the new two-in-one report combines two previously published annual reports: FINRA’s Report on Examination Findings and Observations, and the Risk Monitoring and Examination Program Priorities Letter. FINRA’s objective was to provide member firms with information for assessment and strengthening of compliance, supervisory and risk management programs. FINRA will “revisit” the Report annually.
The new, more user-friendly report identifies the applicable rule and key related considerations for member firm compliance programs, summarizes noteworthy findings from recent examinations, outlines effective practices that FINRA observed during its oversight, and provides additional resources helpful to member firms in fulfilling their compliance obligations. According to FINRA, “This report is designed to give member firms a single, authoritative source that provides insights derived both from the last year’s examinations and risk assessments, and from where we have identified emerging issues for the coming year.”[1]
The Report is organized into four categories and addresses 18 regulatory areas: Firm Operations, Communications and Sales, Market Integrity, and Financial Management. For each regulatory obligation discussed, the Report (1) identifies the applicable rule and key related considerations for member firm compliance programs, (2) summarizes noteworthy findings from recent examinations and outlines effective practices that FINRA observed during its oversight, and (3) provides additional resources that may be helpful to member firms.
FINRA issued guidance to members on “How to Use the Report”, recognizing that member firms are diverse and therefore should after reviewing the Report, “incorporate relevant practices into its compliance programs tailored to its activities”. Member firms were reminded to update their WSPs in light of new laws, rules and regulations. The Report is a “tool” among a host of other identified resources for members.
Category I: Firm Operations
This section of the Report discusses operations issues related to anti-money-laundering (AML), cybersecurity and technology governance, outside business activities, books and records, regulatory event reporting, and fixed income markup disclosure. Below are several key takeaways:
Category II: Communications and Sales
This section of the Report covers Regulation BI (Reg BI) and Form CRS, communications with the public, private placements, and variable annuities. Below are several key takeaways:
Category III: Market Integrity
This section of the Report discusses the Consolidated Audit Trail (CAT), best execution, large-trader reporting, market access, and the vendor display rule. Below are several key takeaways:
Category IV: Financial Management
This section of the Report addresses net capital, liquidity management, credit risk management, and segregation of assets and customer protection. Below are several key takeaways:
If you have any questions or if you would like to discuss these issues further,
please contact Paul A. Lieberman or the Scarinci Hollenbeck attorney with whom you work, at (201) 896-4100.
[1] See Regulatory Notice 20-16 regarding Covid-19 Pandemic Remote Work Environment.
Partner
732-568-8366 plieberman@sh-law.comOn February 1, 2021, the Financial Industry Regulatory Authority (FINRA) published its “Report on FINRA’s Risk Monitoring and Examination Activities” (Report) providing insights of its regulatory operations. In its News Release, FINRA stated that the new two-in-one report combines two previously published annual reports: FINRA’s Report on Examination Findings and Observations, and the Risk Monitoring and Examination Program Priorities Letter. FINRA’s objective was to provide member firms with information for assessment and strengthening of compliance, supervisory and risk management programs. FINRA will “revisit” the Report annually.
The new, more user-friendly report identifies the applicable rule and key related considerations for member firm compliance programs, summarizes noteworthy findings from recent examinations, outlines effective practices that FINRA observed during its oversight, and provides additional resources helpful to member firms in fulfilling their compliance obligations. According to FINRA, “This report is designed to give member firms a single, authoritative source that provides insights derived both from the last year’s examinations and risk assessments, and from where we have identified emerging issues for the coming year.”[1]
The Report is organized into four categories and addresses 18 regulatory areas: Firm Operations, Communications and Sales, Market Integrity, and Financial Management. For each regulatory obligation discussed, the Report (1) identifies the applicable rule and key related considerations for member firm compliance programs, (2) summarizes noteworthy findings from recent examinations and outlines effective practices that FINRA observed during its oversight, and (3) provides additional resources that may be helpful to member firms.
FINRA issued guidance to members on “How to Use the Report”, recognizing that member firms are diverse and therefore should after reviewing the Report, “incorporate relevant practices into its compliance programs tailored to its activities”. Member firms were reminded to update their WSPs in light of new laws, rules and regulations. The Report is a “tool” among a host of other identified resources for members.
Category I: Firm Operations
This section of the Report discusses operations issues related to anti-money-laundering (AML), cybersecurity and technology governance, outside business activities, books and records, regulatory event reporting, and fixed income markup disclosure. Below are several key takeaways:
Category II: Communications and Sales
This section of the Report covers Regulation BI (Reg BI) and Form CRS, communications with the public, private placements, and variable annuities. Below are several key takeaways:
Category III: Market Integrity
This section of the Report discusses the Consolidated Audit Trail (CAT), best execution, large-trader reporting, market access, and the vendor display rule. Below are several key takeaways:
Category IV: Financial Management
This section of the Report addresses net capital, liquidity management, credit risk management, and segregation of assets and customer protection. Below are several key takeaways:
If you have any questions or if you would like to discuss these issues further,
please contact Paul A. Lieberman or the Scarinci Hollenbeck attorney with whom you work, at (201) 896-4100.
[1] See Regulatory Notice 20-16 regarding Covid-19 Pandemic Remote Work Environment.