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  • Writer's pictureInfinity Advisor

FINRA Small Firm Conference Call

Updated: Jan 26



Important notes Before the Call


  • Katie, Stephanie, Claire, Bill are the FINRA Moderators and senior FINRA leaders. 

    • Bill is FINRA’s new head of enforcement. 


Regulatory operations insight 

  • Bill speaking

  • Reg Ops initiative by FINRA o This is FINRAs attempt to better align regulatory operations. Enforcement, transparency services, member supervision, and other key FINRA departments are focused on collaborating going forward. Information is being shared between FINRA departments in order to attempting consistent standards. FINRA’s goal is to achieve a unified solution to meet FINRA’s overall mission/ values.

    • Example: Improve how matters are handed off from investigations or examinations departments to FINRA’s enforcement department.

    • The guiding reasoning behind FINRAs collaboration is to be proactive and collaborate to limit damages before situations snowball.  o If new issues arise, the Reg Ops team determines if notice to members/ regulatory notices should be created. 

      • ACAT fraud regulatory notice is a recent example of this collaboration between various FINRA departments and member firms. FINRA Reg Ops noticed an uptick in ACAT fraud so they issued regulatory notices on risks and effective practices.  

    • Reg Ops area of focus and unified FINRA departments hopefully will provide consistent messaging from FINRA to member firms.

    • Enforcement Department’s main mission

      • Safeguard markets and uphold market integrity.  ▪ Protect investors.


Priorities of Enforcement Department going forward in 2024 

  • Work with Reg Ops 

  • Drive efficiencies and share intelligence between FINRA departments.

  • Reduce time of resolution of pending enforcement matters. Currently FINRA takes a long time to respond to member firms.  o Speeding up the turn around will bar bad actors sooner

    • Speeding up the turn around will provide restitution to clients sooner

  • FINRA enforcement’s goal is to minimize instances where firms hear from FINRA then 18 months later settlement.

  • The enforcement department is looking to use analytics to improve regulatory oversight.

    • Sometimes analytics generate false positives which are handled on a case-by-case basis. 

    • Other times analytics allows for focused restitution.

  • Progressive discipline is what FINRA is working towards to help member firms grow.  o Egregious -> disciplinary action

    • If the issue is an item FINRA can work with member firms on, cautionary actions will be taken on a case-by-case basis.  For secondary offenses, FINRA will likely spend more time to determine if disciplinary action should be taken. This is also on a case-by-case basis. 

  • Enforcement Departments focus.

    • Restitution to clients o Issues with complex products o Create a culture of inclusion at FINRA

      • Train staff and provide skills to staff.

Market regulation and transparency services 

  • Stephanie talking

  • Key objectives o Leverage data more effectively, especially trade surveillance data.

    • Former structure 

      • Vertical based on products o New structure

      • Horizontal based on various categories (unsure what specific categories) o Develop a cross product surveillance program.

  • Looking ahead for 2024 o Continue to focus on key areas of market integrity. o Supervision of manipulative trading o Cat reporting compliance o Best execution

    • Always a key investor protection requirement

    • SEC is thinking about creating their own Best Execution proposal. 

    • Fixed income pricing

      • Mark up guidelines

      • Determination of prevailing market price

      • Supervisory procedures in general o Compliance with reg sho for short selling area o Compliance milestone with CAIS due May 2024

Member Supervision 

  • Claire speaking

  • FINRA Examinations Department’s focus in 2024.

    • Consistent in large part to 2023 areas of focus.

      • Cybersecurity 

      • Reg BI

      • AML

      • Fraud and financial crimes

      • Release of 2024 report is coming.

  • Will have a new name “Regulatory oversight report.”

  • Additional Areas of Focus Crypto assets  Artificial intelligence Transition to T+1 compliance

    • More for clearing firms, not necessarily introducing Broker Dealers. 

  • Exam staff schematic exams will be used.

    • For example, FINRA had a net capital computation schematic exam of member firms.

      • Member supervision noted net capital computation findings.

  • Potential Enhancements in 2024 o Risk based analysis on the back end of FINRA.

    • Exam surveys for member firm feedback following FINRA exams. 

  • Risk Monitoring Changes o In 2023 risk monitoring issued questionaries outside of examinations ▪ Currently, key vendor questionnaire

  • Insight on how to respond.

    • Will firms expect more of these going forward?

  • Yes, risk monitoring uses these for data gathering. 

    • RM department plans to be judicious and limit questionnaires to key initiatives.

Enforcement Department Trends 

  • Recommended areas of focus o Common/ perennial referrals to enforcement 

  • Undisclosed OBAs and PSTs

  • 8210 failures to respond

  • Failure to detect and report AML issues.

  • Reg BI

  • Picking up focused on customer harm. 

  • Excessive trading

  • Care obligations Over concentration of complex products ▪ No traditional ETFs, REITs, etc.

  • Reps lack knowledge of key aspects of products.

  • Double dipping VA purchased in a brokerage account. After purchase and soon after, moved over to an advisory account. 

  • Best interest failure by the rep.

  • Supervision failure by the OSJ. 

  • Inadequate BI procedures of member firms in general.

  • Failure to disclosure (presumably to clients?) Ownership stake (presumably in the securitized product sold to the client). Fees received from issuer.

  • Who has authority over crypto assets?

    • To be determined by other regulatory authorities and not FINRA. 

    • However, FINRA determined a case of OBAs and PST with respect to crypto assets

  • Crypto assets were securities in FINRA’s eyes in one specific case.

  • FINRA determined this by utilizing the Howey test from the supreme court case SEC v. W.J. Howey Co.


CAT Reporting funding model 

  • CAT is to be paid for by SRO’s as well as the industry members.

  • Billing may start early 2024, but the funding model needs to be accepted first.

  • CAT fee will be invoiced by FINRA CAT on behalf of the SRO’s.

    • This is to recoup costs of the SEC mandated CAT reporting. 

  • FINRA will include a separate/ additional invoice on a FINRA invoice to effectively pass on FINRA mandated fees to members. 

    • If member firms are considering passing fees onto clients there are important considerations.

      • If firms elect to do this, revisit customer agreements to make sure this is allowed. 

  • Questions for introducing firms, contact your clearing firm for more information. RBC.

High volume of regulatory change 

  • Claire speaking

  • Is FINRA planning on making sweeping regulatory changes.

    • FINRA is aware of the resources needed to follow regulatory requirements already. 

    • Not focused on sweeping regulatory changes. 

    • Focused on changes based on sec rules 15b91. 

      • This does not appear to apply to IFS at first glance. 

  • Maintaining qualifications programs.

  • Remote inspections pilot program exists.

    • If firms opt in, data must be shared with FINRA.

    • Limitations must be in place.

    • FINRA views the remote inspection pilot program as an attempt to adapt to the current work environment.

  • Hybrid work environment is common.



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