Broker-dealers started the new year with a roadmap from the Financial Industry Regulatory Authority on what to expect during exams, as well as new rules that they’ll be expected to comply with this year.
Priorities laid out in the FINRA’s newly released 2018 Regulatory and Examination Priorities Letter include drilling down on retail fraud and high-risk brokers, with the self-regulator also planning to usher in a revamped exam program in 2018 and enhanced “information-sharing” with firms during exams.
“The coming year will bring both continuity and change in FINRA’s programs,” CEO Robert Cook wrote in a note to firms that accompanied the Priorities Letter.
“The continuity comes, first and foremost, in our unwavering commitment to our mission: protecting investors and promoting market integrity in a manner that facilitates vibrant capital markets,” Cook explained. “Change will come in how we accomplish that mission.”
FINRA’s regulatory chief, Susan Axelrod, told Investment Advisor that while there’s not “one big-bang” item in the priorities, the report includes a “number of changes that [Cook] has talked about — training examiners, getting more information to the industry through the first-ever exam findings report.”
FINRA’s “risk-based exam focus will be front and center” and “will continue to evolve” under Cook, said Axelrod, who now serves as senior advisor to the CEO (and plans to leave her post at FINRA in April).
Besides high-risk firms and rogue brokers, operational and financial risks — including technology governance and cybersecurity — and market regulation will be areas of focus. “Tech governance and cybersecurity are areas of focus for [self-regulatory organizations]; the real issue is getting people on the ground to actually understand” those issues, Axelrod explained.
An important focus of the report, Axelrod continued, is firms’ business continuity plans. Considering the hurricanes that hit Houston and Puerto Rico last year, “are firms prepared” for such events? “The unanticipated challenges” for these areas was the length of time that power was out, Axelrod said. FINRA wants to ensure firms’ continuity plans can “evolve into long-term plans.”