FINRA Publishes 2023 Report on Exam and Risk Monitoring Program

The Financial Industry Regulatory Authority, FINRA, has issued a press release to announce the publication of the 2023 Report on FINRA’s Examination and Risk Monitoring Program. The report is meant to provide guidance to member firms regarding important regulatory issues and compliance with such. The issues covered in the report thereby include the following, among others:
(1) (compliance with) regulation best interest;
(2) best execution obligations;
(3) cyber security particularly in light of the increased threats since the invasion of Ukraine by Russian military;
(4) Consolidated Audit Trail (CAT) obligations;
(5) disclosure and communication obligations with respect to complex products; and
(6) disclosure of routing information.
Of particular note are a few new areas included in the report, namely – as quoted:
– Manipulative Trading. The report’s findings include inadequate written supervisory procedures, non-specific surveillance thresholds and surveillance deficiencies.
– Fixed Income – Fair Pricing. Among the findings are incorrect determination of prevailing market price, outdated mark-up/mark-down grids, failure to consider the impact of mark-up on yield to maturity and unreasonable supervision.
– Fractional Shares. Reporting failures and inadequate supervisory systems and procedures are among the findings.
– Regulation SHO. This section includes findings on non-bona fide market making and impermissible reuse of locates.
The report is structured in the following way: it first outlines relevant legal requirements of firms in the particular areas, subsequently summarizes noticeable finding during examinations, and finally outlines what FINRA considers to be „effective“ practices in that regard. FINRA emphasizes that not all legal aspects apply to each firm; thus, member firms are advised to review those issues tailored to their business models and needs.