The Friday List: 2018 Examination Priorities
Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues. Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.
Both FINRA and the SEC OCIE staff recently released their 2018 examination priorities. Today’s list synthesizes their missives into the 10 most significant regulatory priorities for investment management firms. Several of these priorities are new this year including cryptocurrency, wrap fee programs, and thinly-traded securities. Others such as AML, suitability and best execution are regulatory greatest hits that appear nearly every year. Compli-pros should use these letters to prepare their compliance programs and exam readiness.
10 Most Significant 2018 Examination Priorities
- Disclosure of fees and expenses: Both OCIE and FINRA champion full transparency of fees and expenses so that clients can make informed decisions and understand possible conflicts of interest.
- Cryptocurrency: Expect a lot of attention paid to initial coin and cryptocurrency offerings including recommendations, disclosure, volatility, and security.
- Cybersecurity: The regulators want to ensure that firms implement adequate cyber policies and procedures to protect client information and data systems.
- AML and KYC: This is an area that both regulators have identified for many years, although the focus has moved to customer due diligence and firms’ gatekeeper role to keep securities markets safe.
- Protecting senior investors: Both regulators want to protect senior investors. The SEC focuses on recommendations to retirement accounts. FINRA will review compliance with rules to prevent exploitation.
- Wrap fee programs: The SEC continues its persecution and prosecution of wrap fee programs, including due diligence, best execution, and conflicts.
- Thinly-traded ETFs and microcaps: The regulators have raised the red flag about recommending thinly-traded securities that are subject to market manipulation and pay exorbitant commissions.
- High risk brokers: FINRA wants firms to enhance hiring and supervision practices to keep bad actors out of the industry.
- Suitability: Firms must implement procedures to vet products and train reps.
- Best execution: FINRA is particularly concerned about order-routing practices and resulting conflicts of interest.