FINRA issues its 13-page 2016 Regulatory and Examination Priorities

FINRA issued its 13-page 2016 Regulatory and Examination Priorities Letter yesterday. [Link to the FINRA letter]

Here are a few interesting takeaway blurbs from the letter worth noting:

“While firms may have their own definition of ‘firm culture,’ we use it here to refer to the set of explicit and implicit norms, practices, and expected behaviors that influence how firm executives, supervisors and employees make and implement decisions in the course of conducting a firm’s business.”

“In 2016, FINRA will formalize our assessment of firm culture while continuing our focus on conflicts of interest and ethics.”

“We 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 supervisors are effective role models of firm culture; and whether sub-cultures (e.g., at a branch office, a trading desk or an investment banking department) that may not conform to overall corporate culture are identified and addressed.”

“FINRA’s rules create an obligation for firms to establish and maintain a system to supervise the activities of their associated persons that is designed to achieve compliance with securities laws and regulations, and with FINRA rules. In 2016, FINRA will focus on four areas where we have observed repeated concerns that affect firms’ business conduct and the integrity of the markets: management of conflicts of interest, technology, outsourcing and anti-money laundering (AML).”

“In 2016, FINRA will complete the targeted examination we launched in late 2015 regarding incentive structures and conflicts of interest in connection with firms’ retail brokerage business. This review encompasses firms’ conflict mitigation processes regarding compensation plans for registered representatives, and firms’ approaches to mitigating conflicts of interest that arise through the sale of proprietary or affiliated products, or products for which a firm receives third-party payments (e.g., revenue sharing).”

“In early 2016, FINRA plans to deliver compliance report cards to firms derived from our cross-market equity manipulation surveillance program.”

“FINRA notes that the fixed income market has evolved significantly in recent years with increased transparency, the introduction of new technology and communications channels as well as the proliferation of electronic systems that facilitate trading. As a result of these and other changes, what constitutes reasonable diligence has evolved as more information has generally become available to assist firms in meeting their best execution obligation.”

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