FINRA released podcasts that highlight operational risks and market integrity issues outlined in FINRA's 2017 Regulatory and Examination Priorities Letter (see previous coverage).
The operational risks that were highlighted include:
- cybersecurity, including branch office cybersecurity controls and proper data storage;
- deficiencies in supervisory controls, particularly those that arise when a firm "increases the scale or scope of its business or changes from legacy to new compliance systems";
- compliance with SEC Rule 15c3-3, and firms that engage in transactions without economic substance in order to lower related reserve and segregation requirements;
- compliance with Regulation SHO, including firms' processes for locating stock borrowers prior to executing short sales;
- the monitoring of money laundering and suspicious activity; and
- municipal advisor registration.
The market integrity risks that were highlighted include:
- market manipulation;
- best execution, including the continuing automation of equity and options markets after order-handling decisions;
- FINRA rulemaking initiatives, such as the Audit Trail Reporting Early Remediation Initiative and the Tick Size Pilot;
- firms' compliance with the SEC Market Access Rule, with an emphasis on their related risk management controls documentation and rationales, and the consistent monitoring of the controls' effectiveness;
- examinations of alternative trading systems, with an emphasis on ensuring sufficient and accurate disclosure to customers; and
- enhancements to the FINRA Fixed-Income Securities Surveillance Program.
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.
