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FINRA Exam Priorities 2018

2018 FINRA Exam Priorities Letter

The 2018 FINRA Exam Priorities letter – and a new approach

In January of each year FINRA releases a priorities letter based on exam findings from the previous year.  The letter helps firms improve compliance programs and build integrity for investor markets. This year is exciting because in January 2017 FINRA launched an evaluation of its effectiveness and goal as a self-regulating organization. Early in 2017 the initiative called FINRA360 sparked an introspective approach to the regulators effectiveness in protecting investors, overseeing the investor market, and supporting strong capital markets. This years letter will help broker-dealers clarify the scope and direction of FINRA based on organizational changes and new goals of the SRO.

The priorities report has been used by compliance teams and executives in steering their compliance, supervisory, and risk management programs in the coming year and beyond. This years’ exam priorities letter once again identifies areas of interest based on past examinations conducted by the regulator and overall market observations.

FINRA Exam Priorities 2018

2018 FINRA Exam Priorities:

Fraud – activities such as insider trading, microcap pump-and-dump schemes, issuer fraud, and Ponzi schemes. Exam priorities suggest a close look at schemes that victimize vulnerable investors and seniors. New rules have been added (Rule 2165 and Rule 4512) which provide additional tools to protect seniors. FINRA reminds firms of their obligation to file SAR’s (Suspicious Activity Reports), and is stepping up to refer fraudulent activities outside their purview to the SEC.

High-Risk Firms & Brokers – FINRA’s mission is protecting investors and standardizing investor market regulation. Bad actors seek to evade regulatory requirements and take advantage of investors; creating undue risk for everyone. To this end FINRA seeks to promote effective compliance standards while maintaining equality between small and large broker-dealers by enhancing transparency and access to information. The exam report suggests a focus on hiring and supervisory practices of high-risk brokers, including inspection of tailored compliance programs.

Operational and Financial Risks – Business Continuity Planning (BCP’s) and disaster recovery; Consumer assets protection; Technology management policy and procedures; Cybersecurity protocols; effectiveness of Anti-Money Laundering (AML) programs; Liquidity risk plans.

Sales Practices – adequacy of Suitability controls; Crypto-currency and Coin offering (ICO’s) mechanisms and controls; Margin transactions; Securities backed lines of credit (SBLOC).

Investor Market Integrity – surveillance of Manipulation tactics; Best Execution surveillance; compliance with Rule 201 of Regulation SHO; Fixed Income Data Integrity and reporting through TRACE; Option products and related violations; Market Access and pre-trade financial controls of SEA Rule 15c3-5; Alternative Trading System supervision. FINRA announces launching a “Report Card” system in 2018 which will provide firms with insight into how well they are meeting standards.

 

New Rules are scheduled for release in 2018, and FINRA encourages firms to begin considering how these will be integrated with compliance, risk, and supervisory programs. Highlighted rules focus on protecting vulnerable or exploited investors; Customer Due Diligence and FinCEN reporting; Customer Confirmations; and Consolidated Registration Rules.

View the FINRA Exam and Regulatory priorities for 2018 here

RND Resources, Inc. specializes in vertically integrated compliance programs for broker-dealer, RIA, and private fund offices. Our highly trained staff provides outsourced on-going compliance, FINOP, procedures manuals, and audit assistance on an as needed, interim, or monthly basis. We handle everything from the most complex situations and business models to small offices needing outsourced support. Visit RND services for more information about how we can assist your business; or call (818) 657-0288.

Upcoming FINRA Focus Filing due dates, is your team ready?

Looking to start a Broker-Dealer, we can help…

 

FINRA Examination Priorities 2016

FINRA 2016 Regulatory and Examination priorities letter identifies new areas of focus as well as recurring concerns. While the FINRA examination letter this year re-iterates much of what is on the 2016 SEC priorities letter, there are a few extras.   Compliance Performance

Supervisory, risk management, and controls are always high on the exam list. Cyber-security has been taking a front seat in risk examinations, and AML monitoring is target. FINRA also relays concerns of liquidity management, especially with HFTs impacted by market fluctuations. 

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Dave Banerjee CPA

Dave Banerjee – FINRA District 2 Committee Member

Meet Dave Banerjee CPA   Dave Banerjee

CEO l Consultant l Speaker 

FINRA District 2 – small firm seat

Serving with FINRA is a unique opportunity to influence regulatory policy. Working with so many clients who are subject to regulatory guidelines, I am honored to have the opportunity of speaking for broker dealer firms burdened by overwhelming pressure by compliance oversight through my election to FINRA small firm committee 2017 through 2019. 

 

Personal statement from Dave.  “I understand and recognize the challenges faced by FINRA small firm members and I believe strongly that there is a better way to provide quantifiable results.”

As a compliance and regulatory principal to small and mid-sized firms, Dave has unique insight of the burden placed on smaller broker-dealer firms by regulatory authorities and SEC concerns executed by FINRA (a dual perspective). In recent years Dave has noted the steady decline in applications for new member broker-dealer firms, and an increase in withdrawals. He recognizes the reason for this, in part, is due to the ever-changing regulatory burdens placed on smaller brokers. Dave agrees with others who say, “Current registration and filing requirements have a tremendous impact on a small firms’ ability to invest in building the business. In today’s regulatory landscape there is an undeniable crisis among small broker dealer firms.”

Dave’s Candidate Profile –

 

Speak with Dave Banerjee by phone or contact us below

Office: (818) 657-0288  

Download Candidate Profile

Read more about Dave Banerjee’s qualifications


 

Professional Qualification Highlights

Core Competencies: 

  • Licensed series: 4, 7, 24, 27, 53, 55, 63, 65, 79, 99
  • Member PCAOB, AICPA, NSCP
  • FINRA registered since 1984
  • Mock Audits
  • Compliance Controls
  • FINRA SEC Exams
  • Compliance Outsourcing Specialist

Areas of Expertise:

  • Regulatory Compliance
  • Audits & Exams
  • CyberSecurity Plans
  • Risk Management
  • Tax Compliance & Planning
  • Foreign Investments

About Dave

Dave Banerjee, CPA is a Co-founder and the CEO of RND Resources, Inc. Under Dave’s leadership, RND Resources, Inc. has provided customized compliance consulting, risk assessments, audit services, accounting, registration and PCAOB services to broker dealers, registered investment advisors, hedge funds, commodity trading advisors, commodity pool operators, futures commission merchants, banks, wealth managers, and insurance companies since 1984.

Dave conducts webinars, seminars, on-site consulting & training, and is frequently asked to participate in  public speaking engagements.  Recent panel speaking commitment includes the NSCP National Conference.

Download Dave’s Bio and Speaker media kit

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RIAs take advantage of lax rules

Susan Axelrod: more brokers are migrating to the RIA landscape where regulatory requirements are relaxed

Susan Axelrod, executive vice president of regulatory operations for Financial Industry Regulatory Authority, Inc. say’s she recognizes some brokers are opting out of the brokerage business and moving toward RIA licensing to avoid the stress and burden of frequent exams.

RIAs take advantage of lax rules

Brokers feeling buried under reporting requirements for examinations and personal activity questionnaires are overwhelmed by costs to maintain a compliance department for regulatory compliance.  As more and more firms find exams time-consuming and stressful, it stands to reason that some would breakaway and join the RIA channel.

A concern is whether investors are at a higher risk because of the lax RIA regulatory landscape.  Given the influx of new entrants  simply to avoid regulatory reporting, there should be cause for concern. Certainly, investors can be well-served in either channel, but the fact is, the SEC examines RIA’s under their jurisdiction on average only once every 10 years. SEC Commissioner Daniel Gallagher recognizes there are more advisers in the RIA landscape violating the law than are being caught. In a speech earlier this year he indicated; “we’re just not finding them quickly.”

So an easy solution would seem to be to increase the number of exams for RIA’s. However, implementing this practice is costly and the SEC has yet to convince Congress to authorize additional funds for management.  As an alternative a self funded third party management idea has been tossed about.  One: allow a third-party to manage the exams of RIA’s; and two: implement fee based exams where RIA’s pay to have the exams done. Again, implementing any new plan could take a few years to develop.

Meanwhile, many feel the America public has waited too long for the government to fix the problem. It’s time to start working on a solution and not just bandying ideas about.

What do you think, should exams for RIA’s be just as frequent as they are for brokers?

 

RIA’s vs Broker-Dealer  what’s the difference?

Fiduciary Responsibility vs. Suitability Rule

RIA’s are subject to Fiduciary Responsibility. They must put client interests above own and declare any conflicts of interest.

Brokers are subject to Suitability Rules.  FINRA’s suitability rule states that firms and their associated persons “must have a reasonable basis to believe” that a transaction or investment strategy involving securities that they recommend is suitable for the customer.

 

Commissions vs Fees

RIA’s are paid an advisory fee directly from the client for advice and service, usually a percent of assets under their care, but sometimes a fixed fee. 

Brokers are paid commission based on investment transactions made on your behalf. 

 

Disclosure Rules

RIA’s provide clients with quarterly reports showing the change in portfolio value and fees charged.

Brokers must follow rules for legal disclosures, by providing prospectus booklets and required documents.

 

Relationship

RIA’s work closely with clients; helping to manage their assets. They typically charge based on a percentage of the assets they manage and maintain transparency in dealings to avoid conflicts of interest.

Broker-dealers facilitate investment transactions. They receive a commission based on investment transactions. They  generally cost less in fees and the relationship is well-suited for savvy investors who research and oversee their own investments.

Read more news about regulatory compliance standards for RIA’s and Brokers.