FINRA President Robert Cook has announced that FINRA will conduct new regulatory sweeps focusing on three areas: 1) the use of Special Purpose Acquisition Companies (SPACs) to raise money in the markets; 2) social media influencers who publicly give advice on stocks; and 3) the due diligence conducted by member firms prior to the opening of options accounts.
In a webcast at SIFMA's Compliance and Legal Virtual Conference, Cook set forth that FINRA is "constantly evolving" which includes FINRA's "oversight of new business models, new technologies [and] the evolving ways in which investors access the capital markets." With respect to SPACs, Cook opined that FINRA will focus on "the conflicts of interest that might be there". FINRA must focus on SPACs due to their rise in popularity and the hundreds of billions of dollars they have raised over the last few years.
FINRA will also seek a sweep in the area of paid social media
influencers. According to Cook, the sweep will focus on
"how firms supervise activities and communications related to
paid social media influencers". This seems to come in
the wake of all of the social media attention recently paid to
GameStop (GME : NYSE) and other stocks, whose volatility was
created by hordes of retail investors posting (and
acting upon) messages online through various social media
sites. Those posts lead to unprecedented swings in both
volume and volatility, and gave rise to the expression "meme
stock".
Cook also indicated that FINRA will conduct a sweep "related
to options account opening compliance", focusing in on the
"due diligence" being conducted by firms in this
area. This sweep follows on the heels of FINRA's recent
$70 million settlement with Robinhood Financial LLC, which focused
in part on the failures to supervise the opening of options trading
accounts and the "gamification" of stock trading.
Cook did not reveal any particular time frame for the sweeps, only
that FINRA takes the position that even though the financial
markets are full of innovation, "compliance with rules in not
optional". Stay tuned. If past history is any
indication, we would expect Enforcement actions to come from
these sweeps if only so that FINRA can demonstrate continued
relevance at a time of tremendous change in how individuals buy and
sell securities.
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