In January, FINRA released its annual Regulatory and Examinations Priorities Letter. As with prior editions, the letter highlights the areas of risk and concern that will drive FINRA’s examination and regulatory programs. The backdrop, as with prior FINRA letters, is to assist firms in strengthening their compliance, supervision and risk management internal controls. In 2017, FINRA’s priorities will include a focus on five specific areas:
In this alert, we provide an overview of some of the most significant issues addressed in FINRA’s letter. Of course, FINRA continually assesses the market and is likely to identify additional areas of concern throughout the course of the year. FINRA also plans to initiate electronic, off-site reviews in 2017, which will allow FINRA to review selected areas by making targeted and limited information requests to firms and analyzing responses off-site. Firms should continue to monitor FINRA’s website for developments and update their practices as needed to address changes in regulatory risk.
The first area of priority FINRA identified is the hiring and monitoring of high-risk and recidivist brokers. In particular, FINRA will be devoting attention to firms’ supervisory and compliance controls in this area and is strengthening its approach to high-risk and recidivist brokers in several ways:
In selecting the broad category of sales practices as a 2017 priority, FINRA makes clear that investor protection lies at the heart of its mission and remains a top priority. In particular, FINRA will focus on the following areas:
FINRA’s focus on financial risks, drawing on its findings from assessments performed in recent years, will encompass three main areas:
Another area of priority for FINRA this year will be operational risks, which can be divided into several categories:
A final area of focus for FINRA, market integrity, comprises the following specific issues:
Other market integrity areas of focus include:
In 2017, the common thread running through FINRA’s priorities is a focus on “blocking and tackling” issues of compliance, supervision and risk management. In particular, newly featured topics such as “High-Risk and Recidivist Brokers,” “Excessive and Short-term Trading of Long-term Products” and “Social Media and Electronic Communications Retention and Supervision” merit review and attention. FINRA will continue to provide additional guidance throughout the year on these and other topics, and we can expect the release of several new compliance tools and resources, including the publication of a summary report outlining key examination findings and the introduction of a “compliance calendar” and a “directory of compliance service providers.” Firms should monitor FINRA’s website (www.finra.org), conferences, Regulatory Notices, alerts and Weekly Update emails for timely information and guidance.
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Michael Manley is a partner at Venable and previously served as general counsel, Chief Compliance Officer and Secretary for CĪON Investment Management, LLC, a registered investment adviser and CĪON Investment Corporation, an externally managed, non-traded, business development company.
Mr. Manley was responsible for developing and implementing comprehensive compliance programs, including establishing corporate charters, corporate governance policies and various policies and procedures regarding code of ethics, insider trading, custody and SEC disclosure. He also negotiated agreements with swap counterparties, custodians, consultants, insurers and other fund providers. Additionally, Mr. Manley served as general counsel, chief compliance officer and secretary for both CĪON entities.
Mr. Manley previously worked at investment adviser Plainfield Asset Management and, as co-general counsel and chief compliance officer, managed the day-to-day legal and compliance affairs for Plainfield Direct, a business development company managed by Plainfield Asset Management.