Brokerage Insights - February 2017

February 2017

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2017 SEC and FINRA Regulatory Examination Priorities


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Earlier this month the SEC and FINRA released their respective examination priorities for 2017— please see a brief overview and link to the releases below.


FINRA

Five Areas of Regulatory Focus

FINRA CEO Robert Cook calls this year’s priorities “a focus on core blocking and tackling issues of compliance, supervision and risk management.” Here are the highlights.

1. High-Risk Brokers

Regulators will review how firms hire and supervise brokers with disciplinary records, including branch office inspection practices, the use of unapproved email addresses for business, and client communications via social media, radio, seminars and podcasts.

2. Senior Investors
Broker suitability standards will be under scrutiny as regulators look to ensure sound sales practices targeting senior investors, particularly with penny stocks and complex yield-generating products.

3. Financial Risks
Liquidity and financial risk management practices and contingency planning will be reviewed as regulators seek to understand if firms are adequately prepared to endure market stresses.

4. Operational Risks
Cybersecurity remains a priority with regulators focusing on how well firms understand and manage sensitive data, prevent data loss, monitor passwords, ensure physical security and maintain books and records.

5. Market Integrity
Regulators will focus on surveillance programs targeting trading activity at the open and close, cross-product layering surveillance, best execution, pre- and post-trade market access controls, as well as expand OATs and TRACE reporting programs.

See the full text of the release here.


SEC

The SEC sets sites on Robo-Advisors and FINRA Supervision

The SEC s Office of Compliance Inspections and Examinations (OCIE) selected its 2017 examination priorities by focusing on five thematic areas: examining matters important to retail investors, risks associated with elderly and retiring investors, market wide-risks, FINRA oversight and cybersecurity. While many of these priorities are not new, the SEC will be focusing more on electronic investment advisors (“Robo-Advisors”) and oversight of FINRA examination.

1. Retail Investors
The SEC will be examining investment advisors who provide advisory services through electronic means with a focus on meeting retail investors’ needs, as well as wrap fee programs that provide advisory and brokerage services for a single bundled fee.

2. Senior and Retirement Investments
Meeting the needs of senior investors and those preparing to retire is an important expansion of the regulatory examination program. The OCIE will monitor pension advisors and broker-dealers that offer high risk products in the area of variable insurance products to retirement accounts and manage target date funds.

3. Market-Wide Risks
Regulators will continue their mission of ensuring registrants focus on the integrity of the systems they use by complying with Regulation SCI and anti-money laundering rules. Money-market fund compliance with SEC amended rules, effective October 2016, is a new addition to this initiative.

4. FINRA
Regulatory inspections of FINRA’s operations and regulatory programs will continue Resources will be directed to access the examinations of individual broker-dealers.

5. Cybersecurity
The examination staff will continue to examine investment advisors’ and brokers’ cyber compliance, in accordance with previous pronouncements, related to a cyber framework with policies, procedures and controls to protect the integrity of information systems.

See the full text of the release here.
 

For more information, please contact one of the following industry leaders:
 
John Iacobellis
New York
   Nick Maroules
Chicago

 
Nathan Dick
Los Angeles
  Keith McGowan
New York

 
Carmine Angone
New York
  Bharath Ramachandran
Boston

 
Joe Pacello
New York