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FINRA Releases Annual Risk Monitoring and Examination Priorities Letter

Simms Law, P.C. June 14, 2022

The Financial Industry Regulatory Authority (FINRA) recently released its annual Risk Monitoring and Examination Priorities letter. This yearly letter is an important resource, as it addresses issues for member firms to consider regarding their compliance, supervisory, and risk management programs. In its recently released letter, in addition to noting that it will continue examining and reviewing for priorities discussed in previous annual letters, FINRA informed its member firms of new areas of emphasis for examination and risk monitoring programs.

Regarding examinations, FINRA routinely examines firms for compliance with rules, regulations, and securities laws, initiating enforcement action and imposing sanctions when necessary to deter, punish, and compensate those harmed by non-compliant activities.

In addition, as noted above, FINRA broadened the scope of its 2019 letter to include priorities for risk monitoring, which is the process by which FINRA monitors developments across the securities industry to identify risks and assess their possible consequences. This analysis is then used by FINRA to:

  • Determine whether a particular risk requires a regulatory response by FINRA

  • If a regulatory response is required, determine what FINRA’s response should be

  • Assess and allocate the proper resources to implement the regulatory response

This process involves a number of inputs, including data from its member and market surveillance programs, examination findings, firms’ reporting to FINRA, surveys and questionnaires, and ongoing communication between FINRA, stakeholders, and the industry.

FINRA’s 2019 Priorities

As discussed above, FINRA’s 2019 priorities include old and new topics, with the annual letter emphasizing a focus on new topics. FINRA’s 2019 priorities include:

  • Recommendations of high-fee securities and investments that fail to align with client investment objectives

  • Suitability

  • Overconcentration of illiquid securities, such as private placements, non-traded alternative investments, and variable annuities

  • Senior investor protection, which includes:
    -Identifying circumstances in which a broker is a trustee or has power of attorney for an elderly client
    -Monitoring members for compliance with updated rules that protect elderly and vulnerable investors
    -Placing holds on suspicious account activities

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