FINRA Releases 2018 Regulatory and Exam Priorities Letter: Focus on ICOs, Cryptocurrencies and Protecting Seniors
FINRA issued its 2018 Regulatory and Examinations Priorities Letter (the "Letter") which identifies compliance, supervision and risk management policies or programs. FINRA will continue to focus on fraudulent activities, cybersecurity and suitability. A new area for consideration is FINRA's focus on "...registered representatives recommend[ing] a switch from a brokerage account to an investment adviser account where the switch clearly disadvantages the customer...". FINRA's 2018 exam priorities include: fraud; high-risk firms and brokers; operational and financial risk; sales practice risks including initial coin offerings (the "ICOs") and cryptocurrencies; and market integrity. The Letter is consistent with the ICO warnings issued by FINRA on August 31, 2017. The news release is entitled "Initial Coin Offerings: Know the risks before you buy."
The Letter also points out a few new rules and amendments that will be applicable later this year. For example, Rule 2165 and amendments to Rule 4512 address issues related to the financial exploitation of seniors. Firms should be prepared to take any and all actions necessary to implement these new rules.
To further assist firms with their compliance efforts, FINRA will launch several new report cards:
*The Auto Execution Manipulation Report Card will highlight and assist firms with their supervision efforts to identify instances in which a market participant uses non-bona fide orders to move the NBBO.
*The Alternative Trading System Cross Manipulation Report Card will identify instances in which a market participant engages in potential manipulation of the NBBO, which results in the modification of a security's prevailing midpoint price on an alternative trading system crossing venue.
*The Fixed Income Mark-up Report Card will provide information to firms-including median and mean percentage mark-ups for each firm-and the industry, which firms will be able to display based on certain criteria such as investment rating, product (e.g., corporate or agency) and length of time to maturity. FINRA will consider adding additional products in the future.
To read FINRA's 2018 Letter, Exam Priorities and the FINRA Rules 2165 and 4512, please click on the links below:
If you have questions about this Alert, please contact Daniel G. Viola at 212.573.8038, email@example.com.