FINRA Issues 2014 Exam Priorities
FINRA has issued its 2014 regulatory and examinations priorities letter with a focus on complex product suitability, recidivist brokers, and conflicts of interest. FINRA will examine the suitability of recommendations to retail investors for complex products, which include structured products with interest rate sensitivity, private REITS, frontier emerging market funds, MBS, long duration bond funds, and municipal securities. FINRA promises to create a dedicated enforcement team to prosecute cases against brokers with a history of customer complaints and will assess a firm’s hiring and supervisory practices with respect to such brokers. FINRA will also concentrate on firms’ wealth management practices to make sure they do not push proprietary products. FINRA also listed other areas of concern including protection of customer data, IRA rollovers, IPOs, private placement solicitations (including ensuring accredited investor status), AML, and protecting senior investors. FINRA also listed several financial and operational priorities including liquidity risk and firm stress-testing, net capital calculations, and auditor independence.
OUR TAKE: The exam priorities letter helps by highlighting FINRA’s new focus areas (e.g. interest-rate sensitive securities, recidivist brokers). However, every year the list just gets longer because FINRA never really drops any of the old topics off the list (e.g. AML, customer data protection, conflicts of interest). FINRA also warns that its priorities change over the course of the year.