FINRA Issues 2017 Exam Priorities Letter

Securities Alert

January 4, 2017

Mark D. Knoll

Mark D. Knoll


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Continuing its annual practice of providing member firms with insights into areas FINRA plans to review, FINRA issued this morning its 2017 Exam Priorities Letter. The 2017 letter, the first issued under new CEO Robert Cook, reiterates FINRA’s focus on core “blocking and tackling” issues related to compliance, supervision and risk management. In his cover letter, Mr. Cook announced two initiatives based on observations gathered during his “listening tour” following his taking the CEO role in August last year. One initiative involves FINRA publishing, from time to time, summary reports that outline key findings from regulatory examinations in selected areas. The second initiative relates to the development of additional compliance tools and functionality that would be useful to firms in complying with regulatory requirements. Among the first of these tools announced in Mr. Cook’s cover letter is a “compliance calendar” and directory of compliance service providers. We expect both of these initiatives will provide useful information, tools, and resources to member firms.

The Priorities Letter itself announced the initiation of electronic, off-site reviews designed to supplement the traditional on-site cycle examinations. According to the letter, these off-site exams will be conducted only on a small group of firms that are not currently scheduled for a cycle exam in 2017.

Among the priorities announced for 2017 are:

  • Recidivist and High-Risk Brokers. FINRA will continue to examine firm practices related to the hiring and supervision of “high-risk” brokers with disciplinary or other issues that could present risks to investors;
  • Sales Practices. This includes ongoing reviews related to senior investors, product suitability and concentration, excessive sort-term trading of “long-term products”, outside business activities and private securities transactions, and social media and electronic communication retention and supervision;
  • Financial Risks. Including liquidity, financial risk management, and credit risk policies and determinations;
  • Operational Risks. FINRA will continue to focus on cybersecurity, supervisory controls testing, customer protection/segregation, Regulation SHO, AML, and Municipal Advisor Registration; and
  • Market Integrity. Examiners will review for potential market manipulation, compliance with best execution obligations, along with examining firms for compliance with the Audit Trail Reporting Early Remediation, Tick Size Pilot, Market Access Rule and other trading compliance issues, including equity and fixed income trading issues.

While a host of questions linger regarding the regulatory landscape in light of the incoming administration in Washington D.C., we expect FINRA to continue to pursue its goals and objectives as it sees them. Based on the 2017 Priorities Letter, we see no let-up in FINRA’s rigorous examination program as it carries out its dual mandates of investor protection and market integrity. If you have any questions about any aspect of the Priorities Letter, do not hesitate to contact any attorney in Bressler’s Securities Practice Group.