On January 5, 2016, FINRA published their 2016 Regulatory and Examination Priorities Letter (the “Letter”). Many of priorities discussed had appeared on previous examination priority letters. However, there were several notable new additions to this year’s Letter that warrant additional consideration. Below is a brief synopsis of some of the new issues specifically addressed by FINRA for 2016:
Information leakage. FINRA is reminding firms of their responsibility to have controls on the leakage of non-public information both inside and outside the firm. Firms should review their policies and procedures for the control of non-public information.
Investment banking and research. Firms that provide investment banking and research for the same client have an inherent conflict of interest. In its Letter, FINRA pointed out that $43 million in fines have been levied for violations of research rules and that firms may not promise favorable research reports to win investment banking business. Firms should review their policies and procedures regarding information barriers.
Firm funding. In its letter, FINRA points out that failures to manage funding and liquidity risk have led to firm failures and systemic crisis. Securities that are particularly vulnerable are complex, speculative, longer-duration interest sensitive and alternative products. Firms need to have robust procedures for product review, and sales practices. FINRA also admonished firms to have procedures for suitability reviews and monitoring for excessive concentration.
Public offerings. FINRA reminded firms that they must receive clearance from FINRA prior to engaging in the sales of Regulation A+ offerings which were newly created under the JOBS Act. Moreover, firms involved with Regulation A+ offerings must have appropriate policies and procedures covering this business.
Transmittal of customer funds. FINRA observed incidents where firms failed to adequately supervise the transmittal of customer funds to third-parties. The most common example is a fraudulent request from a compromised email account. Firms need to have heighted controls on such third-party transfers.
This is only a partial list of the items and even if not included in the list, should still be examined as part of the firm’s review. JLG can assist with identifying risks inherent to the firm and make sure policies are aligned with the intentions of the letter. Please contact JLG at firstname.lastname@example.org or call 619.298.2880 if you have questions or would like to know how JLG can assist you understanding, prioritizing and mitigating risks to your firm.