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FINRA Highlights 2019 Examination Priorities

By Erwin J. Shustak, Esq. of Shustak Reynolds & Partners, P.C. posted on Wednesday, February 6, 2019.

 In its 2019 Risk Monitoring and Examination Priorities Letter, The Financial Industry Regulatory Authority, FINRA, announced its 2019 priorities examination list.

Topping the list is new and increased focus on Internet sales of unregistered private placements; mark-up and mark-down disclosures for fixed income products and regulatory technology.  Within that Letter, FINRA makes it clear that new topics are high on its list of topics certain to be the focus of examinations during the coming year.

Suitability, for example, again appears on the annual list. FINRA will be increasing its focus on issue including overconcentration of illiquid securities, such as variable annuities, non-traded alternative investments (often referred to as “alts”) and unregistered private placements as well as high fee mutual fund share classes that may not align with a customer’s investment objectives and risk tolerance.

One of the repeat topics on FINRA’s list is senior investor protection, as seniors continue to be the targets of numerous scams, bad investment advice and rip-offs. This year, FINRA announced its will be monitoring member firms for compliance with obtaining trusted contacts for senior investors and placing quick holds on distributions from accounts that exhibit suspicious activity.  FINRA also is focusing on situations where a broker holds a power of attorney or is a trustee, or other fiduciary, for older clients.

In an announcement accompanying the 2019 focus list, FINRA chief executive Robert Cook said:  “While we continue to review and examine for longstanding priorities discussed in greater detail in past letters, we agree with the suggestion from many of our member firms that a sharper focus on emerging issues will help them better determine whether those issues are relevant to their businesses and how they should be addressed”.

The streamlined 2019 focus list is seven pages; four pages shorter than last year’s list. Fewer focus items allows compliance personnel to focus on the more pressing issues and was welcomed by most compliance professionals.  A shorter, more focused list allows compliance departments to better assess their own, internal regulatory procedures and controls.  One of the items on the FINRA list was a new emphasis on regulatory technology.  FINRA intends to take a hard look at how firms utilize software to perform compliance functions.  FINRA does not want firms to take short cuts on compliance by relying too heavily on technology.

Shustak Reynolds & Partners, P.C.  focuses its practice on securities and financial services law and complex business disputes.  We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner [email protected], or call 800.496.5900 ext. 109.

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