Cryptocurrenices, initial coin offerings (ICOs), and cybersecurity join long-standing issues, such as sales practices and high-risk brokers, as top priorities for the U.S. Financial Industry Regulatory Authority (FINRA) tin the year ahead.
FINRA on Monday released its 2018 Regulatory and Examination Priorities Letter, which highlighting topics the U.S. self-regulatory organization (SRO) will focus on in the coming year.
Regulators plan to direct some attention to the growing prevalence of digital assets. FINRA will “closely monitor developments in this area,” the letter says, including the role that brokerage firms and registered reps play in executing transactions in digital assets.
“Where such assets are securities or where an ICO involves the offer and sale of securities, FINRA may review the mechanisms — for example, supervisory, compliance and operational infrastructure — firms have put in place to ensure compliance with relevant federal securities laws and regulations and FINRA rules,” the letter says says.
At the same time, the SRO also plans to focus on sales practice risks, including recommendations of complex products to unsophisticated, vulnerable investors; the protection of customer assets; and, market integrity issues, among a host of others.
“The coming year will bring both continuity and change in FINRA’s programs,” says Robert Cook, FINRA CEO, in the letter. “The continuity comes, first and foremost, in our unwavering commitment to our mission: protecting investors and promoting market integrity in a manner that facilitates vibrant capital markets. Change will come in how we accomplish that mission.”
For example, FINRA is already in the process of consolidating its enforcement functions into a single unit, and improving the transparency of its advisory committees. It it will be announcing further changes to those committees in the weeks ahead, Cook says. FINRA also plans changes to its compliance program, including measures to increase information sharing with firms during examinations, improve the process for making information requests during exams, and enhance the training of examiners.
Additionally, FINRA seeks to enhance communications with the industry, and its education efforts, Cook notes. “We also are seeking to better leverage our SRO model by utilizing the expertise and experience of our members. A key example is our ongoing effort to work with our members to better understand new financial technologies and how they are being deployed in the market,” he says. “In 2018, for example, we will be continuing to deepen our understanding of broker-dealers’ involvement with initial coin offerings and related activities, as well as digital currencies, and the opportunities and risks they may pose.”
On the market surveillance side, FINRA intends to review how brokers manage conflicts of interest that stem from their duty to ensure best execution, expand its review of execution quality and fair pricing in fixed income securities, and root out potential front running in correlated options products.
In 2018, FINRA will also launch “several new report cards to assist firms with their compliance efforts,” the letter says. It notes that several significant new rules are due to take effect in the coming year, including measures designed to guard against the financial exploitation of vulnerable clients, and new client due diligence requirements, along with several others.