The Financial Industry Regulatory Authority is warning broker-dealers in a new report of Regulation Best Interest and Form CRS compliance gaps the regulator has on its radar this year.
The just-released 2025 FINRA Annual Regulatory Oversight report covers 24 topics, including new areas of scrutiny.
“The topics reflect areas where FINRA has observed gaps in firm compliance programs as well as areas of emerging or increased risk," Greg Ruppert, executive vice president and head of member supervision at FINRA, said Tuesday in a statement.
"The report contains new topics, including a section addressing the third-party risk landscape, and many that will be familiar — such as cybersecurity and cyber-enabled fraud, communications with the public, and Regulation Best Interest and Form CRS — which have been updated to reflect evolving risks, industry trends and exam findings,” Ruppert said.
Among the Reg BI compliance failures includes:
- Making recommendations without developing a sufficient understanding of the features and risks of the recommended security or investment strategy, such as when recommending leveraged and inverse exchange-traded products.
- Recommending that customers replace or switch existing products (e.g., variable annuities, mutual funds, 529 plans) without understanding or considering associated risks and costs, such as surrender charges.
- Failing to consider or compare relevant costs and fees when determining whether to recommend transactions in a customer’s brokerage or advisory account or to recommend transfers of securities between brokerage and advisory accounts.
- Associated persons, firms, or both, improperly using the terms “advisor” or “adviser” in their titles or firm names, even though they lack the appropriate registration and do not engage in other activities that allow the use of those terms.
Compliance failures related to Form CRS, or the Customer Relationship Summary, include failing to properly deliver the form, post the form prominently on a public website and failing to amend the form timely communicate changes to existing retail investors.
As expected, FINRA’s report "showcases Reg BI front and center," Valerie Mirko, leader of Armstrong Teasdale’s Securities Regulation and Litigation practice area, told ThinkAdvisor Tuesday. "More importantly, this year’s iteration of the report adds further specificity, particularly around the importance of due diligence as a component of Reg BI compliance. For example, the report specifically notes to avoid relying solely on information from the issuer or an affiliate — while I am unsurprised to see that, I think this is helpful to firms, particularly smaller broker-dealers."
Other new specific items regarding Reg BI "are the reminders regarding investment profile and concentration limits. Questions regarding both of these come up regularly in the exam and enforcement context (SEC and FINRA)," Mirko said.
FINRA's report also points to firms' failures to supervise social media influencers, as well as firms' use of false, misleading and inaccurate information in mobile apps. This includes distributing false or misleading promotions through social media and “push” notifications or “nudges” on mobile apps that made promissory claims or omitted material information.
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