Blog FinReg + Policy Watch February 11, 2022

FINRA Publishes 2022 Examination and Risk Monitoring Report

On February 9, 2022, FINRA published its 2022 Report on its Examination and Risk Monitoring Program, identifying key areas of focus for broker-dealer exams this year.  While each exam is unique to the firm under FINRA’s microscope, the Report provides a general roadmap of FINRA’s core concerns for 2022.

FINRA’s 2022 priorities include perennial staples such as AML, cybersecurity, communications and sales practices (including related to Reg. BI and CRS), Market Access Rule compliance, and net capital considerations. FINRA also highlights several new risk areas for 2022, including:

  • Firm short positions and fails-to-receive in municipal securities;
  • Trusted contact persons;
  • Funding portals and crowdfunding offerings;
  • Disclosure of routing information; and
  • Portfolio margin and intraday trading.

Quick take…

  1. 2021 marked the first full calendar year of effectiveness for Reg. BI. Looking ahead, both FINRA and the SEC will move beyond reviewing for “good faith” attempts to comply to rigorous examinations for compliance (and enforcement of compliance failures). The best interest standard of conduct, which applies when a broker makes a recommendation to a retail investor, requires that the firm and its associated persons act in the best interest of the retail customer at the time the recommendation is made, without placing their financial or other interests ahead of the retail customer’s interests.
  2. FINRA’s focus on order-routing disclosures comes amid the SEC’s attention to payment for order flow arrangements. The SEC will likely proceed with rulemaking or guidance in this area later this year.
  3. As crowdfunding has proliferated and matured over the past 10 years, FINRA is stepping up its focus on the funding portals it regulates. Relatedly, the SEC recently settled its first-ever case involving Regulation Crowdfunding.

We’ll follow up with weekly updates highlighting specific FINRA focus areas to help firms bolster their supervisory, compliance, and operations programs to ensure that they are well-positioned to weather exams and other inquiries later this year.

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