[ by Howard Haykin ]

FINRA's Regulatory and Examination Priorities for 2013, that ever-popular publication is available for broker-dealer consumption.  The 9-page missive provides guidance on significant 'hot button' topics on which FINRA examiners will focus when conducting annual on-site visits. 

If used properly, FINRA's guidance can prove invaluable.  Firms are encouraged to identify which of their business lines are considered by FINRA as a regulatory and examination priority, and if so, does the firm's supervisory policies and control procedures for each such matched area pass the following minimum standards:   

• Are supervisory practices adequately designed to ensure compliance with securities rules and regulations?

• Are the WSPs complete and up-to-date, and clearly lay out supervisory responsibilities, to include:  (i) who has responsibility;  (ii) what steps fulfill the review;  (iii) when are such reviews to be conducted;  (iv) how should possible exceptions be followed up;  (v) where is the review evidenced? 

• Are applicable books and records of the firm complete, accurate and readily accessible?  Have reviews been consistent with steps laid out in the WSPs?  

Firms are Forewarned.   Firms rightfully view FINRA's current roster of priorities as "the gospel."  But they should understand that today's priorities may be different from next month's priorities.  Regulatory (and political) landscapes are fluid and forever shifting, and continually reveal new risks and concerns that FINRA will incorporate into its examination matrix. 

Firms must track these changes on a real-time basis through Compliance Insights or another resource.  And with each new priority, firm's should have their associates conduct a review - as we describe above.  There are no shortcuts in this game, and failure to stay current will cost the firm and even compliance officers.

How FINRA Organizes Its Priorities by Categories.   FINRA covers a significant amount of information over its 9 pages, and the letter can, at times, be confusing to follow.  Here's our take on the categories.  Follow our coverage of these following categories, beginning today. we'll break out the topics in several postings. 

• Business Conduct and Sales Practice Priorities

1. Suitability and Complex Products;  FINRA describes various types of complex securities, along with what concerns it has with each.
2. Cyber-Security and Data Integrity.
3. Microcap Fraud.
4. Private Placement Securities.
5. Anti-Money Laundering.
6. Automated Investment Advice.
7. Branch Office Supervision.

• Insider Trading

• Financial and Operational Priorities

1. Guarantees and Contingencies.
2. Margin Lending Practices.
3. Leverage and Liquidity.

• Market Regulation Priorities

1. Algorithmic Trading.
2. High-Frequency Trading Abuses.
3. Alternative Trading Systems (ATS).
4. Options Origin Codes.
5. Large Options Position Reporting (LOPR).
6. Fixed Income.

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Concluding Notes:   FINRA encourages firms to use the information in this letter to enhance their supervisory and compliance programs to mitigate risk and better protect investors. As always, firms may contact their Regulatory Coordinator with specific questions or comments.  Firms may also contact Daniel Sibears, FINRA EVP, Member Regulations Programs, with their general comments or suggestions on how the letter can be improved.
 

To access a copy of the letter, go to:   [FINRA Regulatory and Examination Priorities for 2013, 1/11/13].