2020 FINRA Priorities Letter – Focus on Regulation Best Interest, Supervision and Suitability

Wednesday, February 12th, 2020 and is filed under AI Insight News

FINRA recently issued its 2020 Risk Monitoring and Examination Priorities Letter along with its 2019 Report on Examination Findings and Observations. As expected, Regulation Best Interest (Reg BI) takes the lead in this discussion. These reports also highlight, among other things, the continued focus on sales practices regarding supervision and client suitability.

Specifically, the 2020 Priorities Letter states,

“In the first part of the year, FINRA will review firms’ preparedness for Reg BI to gain an understanding of implementation challenges they face and, after the compliance date, will examine firms’ compliance with Reg BI, Form CRS and related SEC guidance and interpretations. FINRA staff expects to work with SEC staff to ensure consistency in examining broker-dealers and their associated persons for compliance with Reg BI and Form CRS.”

The 2019 Findings Report stated,

“Some firms did not have adequate systems of supervision to review that recommendations were suitable in light of a customer’s individual financial situation and needs, investment experience, risk tolerance, time horizon, investment objectives, liquidity needs and other investment profile factors. This report shares some new suitability-related findings, as well as additional nuances on prior years’ findings.”

Cybersecurity

At the end of the letter, FINRA addresses firm operations, technology and cybersecurity noting, “FINRA recognizes that there is no one-size-fits-all approach to cybersecurity, but expects firms to implement controls appropriate to their business model and scale of operations.”

Key Takeaways

• See this checklist, which explains key differences between FINRA rules and Reg BI and Form CRS.
• Carefully review and understand the specific suitability requirements for each non-traded or private placement program utilized and ensure that your firm has a documented process in place to monitor the compliance with suitability requirements.
• Document the due diligence process – remember, if it isn’t documented, it was never done.
• Review how regulators look at cybersecurity and key strategies to be compliant. Click here for additional resources and take the CE Course, “Cybersecurity Awareness for Financial Professionals”.

Let AI Insight help you stay compliant

• Discover how you can create efficiencies in your due diligence review process using our database of 350+ alternative investments to source new products as well as analyze and compare hundreds of alternative investment programs, including non-traded programs, private placements, and alternative mutual funds.
• Demonstrate your due diligence by conducing product-specific training on the features, risks and suitability for hundreds of offerings.
• Document what you’re doing to support your firm’s regulatory requirements in a transparent way. AI Insight captures all of the activity you and your firm members complete within the platform including training modules, offering document reviews and research conducted.

Resources

• 2020 Risk Monitoring and Examination Priorities Letter and Podcast
• Press Release: SEC Office of Compliance Inspections and Examinations Announces 2020 Examination Priorities
• PDF: SEC 2020 Examination Priorities
• Webinar: 2019 Year-End Recap-Private Placements