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FINRA Highlights Its 2017 Exam Priorities

March 24, 2017

FINRA is using podcasts to highlight its 2017 Exam Priorities that were disseminated to member firms earlier this year. In today’s podcast, the third in a 4-part series, FINRA presents the following observations pertaining to key issues:


1.  CYBER SECURITY.    FINRA has noted repeated branch cyber compliance shortcomings pertaining to: 

  • branch office cyber compliance controls - (i) password strength and sharing; (ii) data encryption; (iii) portable storage device use; (iv) virus protection.
  • correct data storage – (i) failure to store certain records in non-rewritable, non-erasable format.


2.  FIRM’S OWN TESTING OF SUPERVISORY CONTROLS.    FINRA notes that controls most commonly break down when a firm increases the scales or scope of its business, or it changes from a legacy to a new compliance system. Most common


3.  CUSTOMER PROPERTY AND SEGREGATIONS OF CLIENT ASSETS (SEC RULE 15C3-3).    When looking at firms’ documentation and procedures, FINRA has noted: (i) some firms engage in transactions with little or no economic substance just to reduce their reserve or segregation requirements.


4.  SEC REG. SHOW (SHORT SALES).    FINRA finds that: (i) firms don’t always have reasonable grounds to believe that shares are available for borrowing before entering short sales.


5.  AML AND SUSPICIOUS ACTIVITY TRANSACTIONS.    FINRA has noted deficiencies related to: (i) data integrity issues; (ii) suspicious microcap activity; (iii) foreign currency transaction monitoring; and, (iv) accounts controlled by nominee companies.


6.  MUNI ADVISOR REGISTRATION.      FINRA finds that:  (i) some firms are not registering correctly with the SEC and the MSRB; and, (ii) not adequately registering their personnel.