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FINRA’s 2018 Priorities Letter: Increased Exam Transparency, More Tools for Firms, and a Focus of Retail Investment Fraud

Client Updates
FINRA issued its 2018 Regulatory and Examination Priorities Letter (the “Priorities Letter”) this week and it contained plenty of welcome news for member firms. The Priorities Letter – combined with the introductory remarks of FINRA President and Chief Executive Officer Robert Cook – makes clear that FINRA is committed to increased transparency throughout the examination and enforcement processes. In addition, the Priorities Letter seeks to provide firms with a myriad of tools that allow them to gauge the success of their compliance efforts and avoid being caught unaware by examination findings or changing regulatory interpretations. In terms of specifics, FINRA’s focus closely parallels that of the Securities and Exchange Commission, with ponzi schemes, boiler rooms, penny stocks, senior investors, suitability, and cybersecurity all receiving particular mention. As in years past, FINRA runs through its market integrity and customer asset protection programs, but does not address how these programs will evolve with the implementation of the Consolidated Audit Trail (CAT) or adjust in light of the mass migration of assets from broker-dealer to investment advisors.

On a macro level, the Priorities Letter makes clear that FINRA is continuing to work hard to strengthen its relationship with its member firms. FINRA 360 (its self-evaluation and organizational improvement initiative) remains a work in progress with a strong focus on efficiency, evidenced by the previously announced combination of the two Enforcement operations. While there has been no news of immediate efforts to eliminate additional duplicative programs at FINRA, the industry should expect various tweaks in the near term that will make life easier for FINRA member firms.

The Priorities Letter underscores FINRA’s willingness to be flexible in the examination process and its receptiveness to the escalation of issues that cannot be resolved with the primary examiner. On the Enforcement side, expect another year of cases focused on significant customer harm, vulnerable victims, and bedrock investor protection. Supervision cases that do not involve customer harm and “technical” violations will remain on Enforcement’s backburner, particularly for those firms who are proactive in detecting and remediating the issues.

The Priority Letter can be found at:

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