FINRA Releases Exam Priorities Reflecting New Concerns

FINRA has issued a letter to its members outlining its 2009 examination priorities. Several issues highlighted reflect the current market environment: (a) suitability with respect to alternative investments particularly interest rate and liquidity risk; (b) investments characterized as “cash alternatives”; (c) controls over outsourcing operational functions; (d) inventory and collateral valuation; (e) firm funding, liquidity, and viability; (f) counterparty risk; (g) order-entry controls; and (h) bank sweep programs. FINRA also cautioned firms that headcount reductions in compliance, finance and operations should be commensurate (and not greater than) headcount reductions in revenue-producing areas. FINRA also included some of their “greatest hits” from years past: (a) supervision; (b) senior investors; (c) anti-money laundering; (d) penny stocks; (e) protection of customer data; (f) reserve calculations; and (g) trade reporting.

OUR TAKE: With the market impact on firms, FINRA has a whole new set of issues to examine around cash investments and firm liquidity.

http://www.finra.org/web/groups/industry/@ip/@reg/@guide/documents/industry/p118113.pdf