The Financial Industry Regulatory Authority (“FINRA”) issued a letter setting forth its exam priorities for 2017. These include a focus on implementation of Regulatory Notice 15-46 on Best Execution, and exhorting firms to consider the continuing automation of the markets for equity securities and standardized options, and recent advances in trading technology and communications in the fixed income markets. Fixed Income Trading Surveillance is also a priority, and FINRA notes that enforcement actions have been brought against people they believe have extracted excessive mark-ups for such securities. The need for better compliance with the market access rules is also noted. Other priorities include: (i) firms’ hiring and monitoring of high-risk and recidivist brokers; (ii) firms’ controls to protect senior investors from fraud, abuse and improper advice; (iii) microcap (“penny stock”) fraud schemes, especially those targeting the elderly; (iv) conduct of suitability reviews by firms; (v) controls firms use to monitor recommendations that could result in excess concentration in customers’ accounts; (vi) firms’ ability to monitor for short-term trading of long-term products, such as open- and closed-end mutual funds, variable annuities and unit investment trusts (UITs); (vii) detection by supervisory systems of activity intended to evade automated surveillance for excessive switching activity; (viii) outside activities and private securities transactions; (ix) retention and supervision of electronic communications, including social media; (x) liquidity and financial risk management; (xi) margin an other credit risk policies and procedures; (xii) cybersecurity; (xiii) client asset protection; (xiv) reduction of fails to deliver against borrows and close-outs; (xv) AML and suspicious activity monitoring; (xvi) municipal adviser registration; (xvii) manipulation; and (xviii) certain other market integrity matters.
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