The Financial Industry Regulatory Authority today released its annual list of exam priorities for 2014, which includes a new focus on rogue brokers and proprietary product sales.
"Finra's examination priorities for 2014 provide the industry with a road map of issues that may be of risk to the investing public,” said Richard Ketchum, Finra chief executive, adding that the list will “alert firms to the issues we have identified as the most salient risks.”
Like last year, Finra will be watching for suitability issues and disclosures made to investors about complex investments such as structured products and private placements, which have attracted many unsophisticated and yield-starved investors.
But this year, Finra examiners will have a new focus on “recidivist” brokers, defined as those who have been the subject of repeated customer complaints or who have worked for firms that have been shut down over sales practice abuses.
Finra launched a high-risk broker initiative to identify rogue brokers in 2013. Finra said it will expand the program this year and create a dedicated enforcement team to prosecute cases.
Examiners will also be evaluating member firms’ conflict-of-interest policies and following up on a Finra report from October describing findings from a review of the conflicts in manufacturing and selling products.
Finra said it will “assess whether wealth management businesses make independent decisions about the products they offer without pressure to favor proprietary products or products for which the firm has revenue-sharing agreements.”
Finra will also be tracking how firms handle IRA rollovers to ensure that recommendations made to roll over an account are suitable. In a regulatory notice last month, Finra warned the industry about making misleading pitches in the quest to gain rollovers.
With the IPO market heating up, Finra said it will be on the lookout for firms and brokers violating its rules against quid-pro-quo allocations of hot issues, and “whether firms are incenting associated persons to sell cold offerings to obtain client allocations of hot offerings.”
Finally, now that advertising of private placements is allowed thanks to a change in law that became effective last September, Finra said it will be looking at advertising materials used in the sale of private deals. And Finra is gearing up to track newly regulated municipal advisors once SEC rules become effective on January 13.
Finra's list of exam priorities can be downloaded here.