Continuing a popular release now for the 9th year ina row, FINRA issued its annual exam priorities letter, highlighting areas of concerns on which they will be focused in 2014. This is a must read for all compliance and legal folks within the broker-dealer industry, as well as those with supervisory responsibilities. I also think it is a good read for everyone else in the industry, including brokers, so that they can understand some of the big ticket items on the regulator's radar screen this year. Knowledge is a good thing.
The items highlighted in this year's priority list are not surprising. On the sales practice issue, FINRA is letting us know that suitability of complex products is still a very large concern. And, to that end, they are also concerned about the knowledge that broker's have about complex products. Do they understand it? Can they explain it adequately? If not, why are they talking to clients about it? Other sales practice concerns include a heightened focus on what FINRA identifies as "recidivist brokers," who are brokers who have a pattern of complaints or other disclosures relating to sales practice abuses. In addition to focusing exam efforts on these individuals, FINRA is also looking at the firms that hire these brokers, and explain that the will review due diligence in the hiring process and the supervision of the individual. Other exam focus areas include conflicts of interest, data security, private placements, and more. On the market regulation side, some key focus areas include audit trail integrity and best execution of trades.
This is not a complete list of the exam priorities, so you should read the entire letter for yourself at the link above. And then assess your compliance and supervision systems and determine whether any changes ought to be made. Forewarned is forearmed.