FINRA’s 2016 Focus: Supervision, Liquidity and Securities Firms’ Culture

WASHINGTON–(BUSINESS WIRE)–The Financial Industry Regulatory Authority (FINRA) today released its
2016 Regulatory and Examination Priorities letter highlighting three
broad issues – supervision, risk management and controls; and liquidity.
The letter also emphasizes firm culture, conflicts of interest and
ethics, and the significant role each of these plays in the way a firm
conducts its business.

FINRA cites some overarching themes in the letter:

Supervision, risk management and controls – FINRA examinations
will emphasize anti-money laundering, cybersecurity, the management of
conflicts of interest and technology management, as well as outsourcing
and data quality.

Liquidity – FINRA will review the adequacy of firms’ contingency
funding plans both in light of their business model and in connection
with testing for marketwide and idiosyncratic stresses. It will also
evaluate high-frequency-trading firms’ liquidity planning and controls.

Other areas of priority in 2016 will include:

  • firms’ monitoring of excessive concentrations and recommendations,
    particularly regarding complex, speculative or illiquid products;
  • seniors and vulnerable investors;
  • private placements and Regulation A+ offerings;
  • fixed income securities, including excessive charges;
  • market integrity, including the Vendor Display Rule, market access,
    fixed-income order handling, Regulation SHO, and manipulation across
    markets and products; and
  • financial and operational controls relating to exchange-traded funds
    and fixed-income prime brokerage.

“Nearly a decade after the financial crisis, some firms continue to
experience systemic breakdowns manifested through significant violations
due to poor cultures of compliance,” said FINRA Chairman and CEO Richard
Ketchum. “In 2016, FINRA will be looking for firms to focus on their
culture and whether it is putting customers first and promoting risk
management adaptable to a changing business environment. Our goal is not
to dictate a specific culture, but rather to understand how each firm’s
culture affects compliance and risk management practices. Firms with a
strong ethical culture and senior leaders who set the right tone, lead
by example, and impose consequences on anyone who violates the firm’s
cultural norms are essential to restoring investor confidence and trust
in the securities industry.”

FINRA will formalize its assessment of firm culture to better understand
how it impacts compliance and risk management. It will also complete the
review begun in late 2015 regarding incentives and conflicts of interest
in connection with firms’ retail brokerage business. In particular,
FINRA will assess five indicators of a firm’s culture:

  • whether control functions are valued within the organization;
  • whether policy or control breaches are tolerated;
  • whether the organization proactively seeks to identify risk and
    compliance events;
  • whether immediate managers are effective role models of firm culture;
    and
  • whether sub-cultures that may not conform to overall corporate culture
    are identified and addressed.

FINRA, the Financial Industry Regulatory Authority, is the largest
independent regulator for all securities firms doing business in the
United States. FINRA is dedicated to investor protection and market
integrity through effective and efficient regulation and complementary
compliance and technology-based services. FINRA touches virtually every
aspect of the securities business – from registering and educating all
industry participants to examining securities firms, writing rules,
enforcing those rules and the federal securities laws, and informing and
educating the investing public. In addition, FINRA provides surveillance
and other regulatory services for equities and options markets, as well
as trade reporting and other industry utilities. FINRA also administers
the largest dispute resolution forum for investors and firms. For more
information, please visit www.finra.org.

Contacts

Financial Industry Regulatory Authority (FINRA)
Nancy
Condon
, 202-728-8379
Michelle
Ong
, 202-728-8464
Ray
Pellecchia
, 212-728-4387