Most Read Contributor in United States, August 2016
In Regulatory Notice 13-31, FINRA gave guidance regarding its
approach and expectations when it conducts a suitability
examination. FINRA's critical starting off point begins
with its analysis of firm controls through interviews with
principals responsible for preparing the firm's policies and
FINRA is providing this guidance as it has only been a little
more than a year since the new "suitability" rule took
effect. As part of the overall examination process, FINRA
will typically ask the following questions:
What training has the firm deployed regarding the change in
Does the firm offer training for associated persons to address
investment strategies and hold recommendations?
How are investment strategies (including hold recommendations)
defined and supervised?
What are the firm's supervisory and compliance procedures
for determining whether there was a reasonable basis for the
What tools does the firm deploy to uncover in-and-out trading,
high turnover rates and commission-equity ratios?
How does the firm go about determining if a client constitutes
an institutional investor for the purposes of being capable to
independently evaluate investment risks?
What protocols does the firm use to ensure that it obtains an
affirmative acknowledgement from an institutional client that it is
exercising independent judgment?
If the firm uses a portfolio analytic tool or model, how does it
determine whether the tools or models make recommendations subject
to the suitability rule or satisfy the safe harbor criteria in Rule
If you have not been subject to a FINRA suitability examination
under the new suitability rule, pose these questions to your
firm. If you cannot answer them in some fashion, you likely
do not have adequate protocols in place. Take the time to
revisit your policies and procedures before FINRA does it for
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In August 2016, a former risk officer wrote an opinion piece published by the Financial Times explaining his reason for allegedly rejecting a whistleblower award of USD 8.25 million (half of the 16.5 million total).
The SEC recently proposed new Rule 206(4)-4 under the Investment Advisers Act of 1940, which would require registered investment advisers to adopt and implement business continuity and transition plans.
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