Jan 16, 2023 | News

Broker Dealer Brief: Finra’s Top Exam Priorities

It may be time for Broker Dealers to shore up their compliance programs. Finra has released its annual Examination and Risk Monitoring Program report.  This gives Broker Dealers insight into activities and findings from recent activities of Finra’s Member Supervision and Market Regulation and Enforcement programs. There are Four Key Exam priorities, some new for this year.

The report details where broker dealers seem to be falling short and should be used to strengthen their compliance programs.

Here are the top four areas of concern:

  1. Cybersecurity Threats

The frequency and sophistication of the attacks continue to increase. Cybersecurity incidents include takeovers, ransomware, network disruption, and exposure to customer information as well as fraudulent financial activity. Click here for a list of considerations:

  1. Complex Products

Finra reviews firms’ communications and disclosures to customers relating to complex products and customer account activity.  The review includes whether recommendations regarding these products were in the best interest . Reg BI and Form CRS became effective on June 30, 2020 and Finra has been examining these obligations throughout 2021 and 2022. Broker Dealers that offer services to retail investors must file and provide retail investors with a Form CRS, a brief relationship summary that discloses material information about the firm such as investment services provided, fees, conflicts of interest, legal and disciplinary history of both firm and professionals.

  1. Conflicts of Interest as it relates to Reg BI and Form CRS

Finra has observed failures related to Broker Dealers non-disclosure of addressing conflicts of interest, all material facts related to conflicts of interest, and failure to establish and enforce written supervisory procedures and filing, as well as failure to deliver and track an accurate Form CRS (mentioned above). Click here for a list of considerations.

  1. Mobile Apps

Finra has observed issues with the mobile apps of Broker Dealers.  These issues included apps that do not distinguish between products and services of the broker-dealer and those that are affiliated with third parties such as transactions involving crypto.  Moreover, issues have arisen on failure to disclose and explain higher-risk products or services that involve options or margin lending activities.

For the full report on Finra’s Examination and Risk Monitoring Program, click here.

Finra also put together an Appendix with regard to using the data to strengthen your firm’s compliance program.  For the Appendix, click here.