Sales Practice Risks in FINRA’s 2018 Regulatory and Examination Priorities Letter

By: Esmat Hanano, IAC Intern Spring 2018

This is the fifth and final post in a series of blog posts about the Financial Industry Regulatory Authority’s (“FINRA”) 2018 Regulatory and Examination Priorities Letter (“Letter”). This post will discuss the sales practice risks that FINRA has identified for 2018. The sales practice risks that FINRA identifies is the most important section of the Letter for retail investors because it will alert them to unsavory investment opportunities. This year, there are two main areas that FINRA wants member firms to focus on with their sales practices: suitability and cryptocurrency offerings. Continue reading

I’d Like to Comment on That

By: Dowdy White, Spring 2018 Student Intern

One great thing about life is the fact that we have the power to speak up when we don’t like something. Though our comments or criticisms may sometimes be unsolicited or harsh, we still have the liberty to speak up and speak out.

Throughout its arbitration proceedings in accordance with rules of the Securities and Exchange Commission (SEC), FINRA has taken great concern with the circumstances in which a customer receives an arbitration award against a broker or firm that goes unpaid. FINRA has come up with many ideas and proposals to combat this issue, but the issue remains prevalent and on the forefront of FINRA’s mind. In fact, FINRA states that it is “continuing to pursue a number of proposals to further address this issue within the scope of its jurisdiction.” Continue reading

Operational and Financial Risks According to FINRA: Part 2

By: Esmat Hanano, IAC Intern Spring 2018

This is the fourth post in a series of blog posts about the Financial Industry Regulatory Authority’s (“FINRA”) 2018 Regulatory and Examination Priorities Letter (“Letter”). This post covers the operational and financial risks identified by FINRA in its Letter. Specifically, this post will discuss FINRA’s focus on cybersecurity, anti-money laundering, and liquidity risk.  As many sectors of the economy become more dependent on technology and cyber capabilities, cybersecurity has become a top priority for many large firms. FINRA recognizes the importance of cybersecurity and will be evaluating member firm’s cybersecurity capabilities to make sure that they can withstand cyber-attacks. Moreover, FINRA has required that firms have detailed policies in place to deal with cybersecurity threats. The focus on cybersecurity, coupled with the evaluation of technology governance procedures, shows the importance of making sure that member firms are prepared for continuing developments in cyber technology. Continue reading

It’s All About the Money, Honey

By: Dowdy White, Spring 2018 IAC Student Intern

One of the most iconic phrases in American entertainment is “money makes the world go ‘round.” First quoted on Broadway in the 1960s and made even more popular by a Liza Minnelli song, this phrase is even truer when it comes to FINRA arbitration proceedings.

When investors file a complaint against their brokers in an effort to recover lost investment capital and ultimately receive a damages award in their favor, what allows them to recover from a broker or firm that does not pay an award? Throughout this blog series, we have discussed that very topic. We have also discussed approaches taken by FINRA to be proactive in this field. But, what more can FINRA do? Continue reading

Operational and Financial Risks for 2018 According to FINRA

By: Esmat Hanano, IAC Intern Spring 2018

This is the third post in a series about the Financial Industry Regulatory Authority’s (“FINRA”) 2018 Regulatory and Examination Priorities Letter (“Letter”). This post focuses on the operational and financial risks identified by FINRA in its Letter. The operational and financial risks section of FINRA’s Letter discusses the areas of concern that FINRA foresees being an issue for members in the coming year. This year’s Letter focuses on a number of issues, specifically: Business Continuity Planning, Customer Protection and Verification of Assets and Liabilities, Technology Governance, Cybersecurity, Anti-Money Laundering, and Liquidity Risk. This post will cover the first three issues, and the next post in the series will cover the rest. Continue reading

Scatter, Scatter, Scatter!

By: Dowdy White, Spring 2018 IAC Student Intern

You’ve probably heard of the phrase “jumping ship.” If a ship is taking on water and about to sink, it would probably be the best idea for you jump onto another ship to keep from drowning. As it turns out, this is actually a disturbing, but common, practice with broker-dealers. If a broker caused a claim to be brought against himself or his firm and the claimant was awarded a substantial amount that would bankrupt either the broker or the firm, the broker could switch firms and the firm could transfer its assets to a separate firm in order to avoid becoming inactive.

I like to think of this situation as insects, perhaps roaches, living under a big rock. When you pick up the rock and reveal the insects, they scatter and go hide under another rock. As soon as you pick that rock, they again find another rock. This cycle could go on for as long as there are more rocks in the yard.

Lucky for us, FINRA recently submitted a regulatory notice to combat this problem! Specifically, the proposed amendment addresses FINRA’s concerns in situations where a FINRA member firm hires a broker with pending arbitration claims, where there are concerns about the payment of those claims should they go to award or result in a settlement, and the supervision of those individuals, and when a member firm with substantial arbitration claims seeks to avoid payment of the claims by shifting its assets to another firm and closing down. Continue reading

New Rules in FINRA’s Regulatory and Examination Priorities for 2018 

By: Esmat Hanano, IAC Intern Spring 2018

This is the second post in a series of blog posts on the 2018 Regulatory and Examination Priorities Letter (“Letter”) published by the Financial Industry Regulatory Authority (“FINRA”). One of the most important parts of the Letter is the New Rules section. In this section, FINRA alerts firms to rules that will take effect in 2018. This year’s Letter includes six new rules that address a wide array of topics within FINRA. This post will focus on the three rules that impact retail investors the most. Continue reading