High-risk brokers and digital currencies will be under the regulatory spotlight of the Financial Industry Regulatory Authority this year.
In its annual regulatory and examination priorities letter, (https://www.finra.org/industry/2018-regulatory-and-examination-priorities-letter ) Finra chief executive Robert Cook said Finra would continue to focus on high-risk brokers during exams and with new rules, and “deepen our understanding of broker-dealers’ involvement with initial coin offerings and related activities.” Meanwhile, on Monday, the SEC halted trading in a company benefiting from the cryptocurrency boom.
Finra will also be identifying high-risk firms and individual brokers, the letter said, with a focus on hiring and supervisory practices, remote supervision arrangements and branch-inspection programs, supervision of point-of-sale activities, and use of joint rep codes.
Supervision of new and complex products will also garner attention, with additional focus on employer-sponsored retirement plans and inappropriate switches from brokerage to fee-based accounts.
Firms should be attentive to their brokers’ activity in microcap stocks, Finra said, “particularly when brokers show a new or sudden interest in buying microcap stocks for their own accounts or those of their customers.”
Other areas of focus include business continuity planning, protection of customer assets, technology systems and cybersecurity, anti-money laundering programs, margin and securities-backed lines of credit, and short sales.
Regarding short sales, Finra said it has observed some instances where securities are borrowed into a conduit account and then loaned to a house account at a significantly higher rate, which then may be marked up to customers.
As part of Finra’s oversight this year, Cook promised to increase information sharing with firms during examinations, improve the process for making information requests, and enhance training of examiners.