FINRA on Record Enforcement Pace in ’13, Enforcement Chief Says

Another area, Shroeder said, where “things can go wrong” in the sales of these complex products is the “customer specific suitability issue, where we see overconcentration problems.” For instance, she said, “so many states have concentration rules and many private placements have concentration requirements.” The third area where things can go wrong, she said, is in the “provision of information about complex problems, which is keeping up with and providing current and accurate data.”

Another problem area for FINRA, Schroeder said, has been in cybersecurity. As it stands now, FINRA’s enforcement division is handling more than 100 wire-hacker cases, she said. In some of these cases, “a customer’s email gets hacked and then the hacker reaches out to the customer’s broker and asks for a wire transfer to be sent” to a bank account. She said FINRA Regulatory Notice 12-05 addresses the cybersecurity issue.

Schroeder said that FINRA’s enforcement division was also prioritizing “the culture of compliance,” which she deemed as “more of an approach” than a product. “We see firms with a constellation of compliance violations, and we look at the overall supervisory structure and its senior supervisors, whether they contribute to a culture of compliance or one of deficiencies,” she said.

Finally, Schroeder said FINRA was seeing “a lot” of anti-money laundering violations. Some of the recent AML cases were levied because firms had failed to tailor the AML program to the firm’s business model.

On May 8, FINRA fined three firms a total of $900,000 for failing to establish and implement adequate anti-money laundering programs.