FINRA announces 2015 Exam Priorities
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FINRA announces 2015 Exam Priorities

FINRA has just released its annual exam priorities letter, this is the tenth year that FINRA has released the letter which provides firms with an outline at the topics that FINRA will look at closely during the coming year.

FINRA and the SEC are firm believers that strong internal controls and procedures along with training registered representatives in the rules of the industry and using education materials will help establish a “Culture of Compliance”.   This is why regulators utilize notifications such as the exam priorities letter, in order to help firms strengthen their compliance programs in these areas before an exam commences.

FINRA Exam Priorities for 2015 are as follows:

  1. Sales Practice:   Are your policies and procedures up to date as it relates to
  2. Interest Rate- Sensitive Fixed Income Securities
  3. Variable Annuities
  4. Alternative Mutual Funds
  5. Non-Traded Real Estate Trusts (REITS)
  6. Exchange -Traded Products (ETPs) Tracking Alternatively Weight Indices.
  7. Floating -Rate Bank Loan Funds
  8. Securities-Backed Lines of Credit ( SBLOCs
  9. Wealth Events ( IRA Rollovers and Other Wealth Events
  10. Excessive Trading and Concentration Controls
  11. Private Placements
  12. Senior Investors

The common element relates to the controls and procedures the firm has in place when it comes to ensuring that the firm has done its due diligence financial product that is recommended to the public is suitable for the customer.

The remainder of the letter discusses topics that is always part of the annual letter

  1. Anti-Money Laundering
  2. Market  Access
  3. Audit Trail Integrity
  4. Cyber Security
  5. Outsourcing
  6. High Frequency Trading
  7. Sales Charge Discounts and Waivers

As usual, FINRA has a large laundry list to deal with this year, which is dictated by the trends that they have seen due to the numerous examinations that have taken place over the past few years. FINRA continues to implement rules to protect the general investing public and institutional investors.    While a risk based approach is appreciated, the burden to supervise and maintain a strong level of supervision remains a challenge to the industry especially to small and medium sized firm which constitute the majority of its membership.

Lastly, there are three hot button business lines to watch for developments

Municipal Advisor Registration – 2014 marked the beginning of Municipal Advisor Registration, the process is extremely cumbersome, and firm must register with both the MSRB and SEC, while the process is done by filing on line, the paperwork for Form MA and Form MA-I can be a bear for a firm to handle on its own.

Private Placements – Rule 5122 and Rule 5123 have filing requirements when recommending a placement to retail investors, there are several exceptions that relate to institutional investors.  

The most important part of Private Placements is ensuring that you have done adequate due diligence on your client who is looking to raise capital (doesn’t matter if equity or debt raise).  Make sure your data room is complete and that all documents, including financials, tax number, background search, marketing materials and a copy of the PPM is available if requested by the regulators 

Jobs Act of 2012

If you are looking to get involved in crowd funding, it is advised that either you affiliate with a broker-dealer or create or purchase a broker-dealer.  , As the rules related to crowd funding continue to evolve, there will be an increase in regulatory requirements most notably in the areas of suitability, anti-money money laundering and due diligence.

Spotlight Compliance Solutions and its various compliance partners can help you to navigate through the regulatory landscape (we handle both Broker-Dealer and Investment Advisors and we also have relationships with clearing firms and compliance  technology providers).

While we are located on the East Coast, our prices are more aligned to those of Midwest compliance providers.

If you have any questions related to this post, or need assistance, feel free to contact me at

jack@jackfaller.com   

Ph. 973-769-6253

 

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