At the SIFMA Compliance and Legal Monthly Luncheon held at the Harvard Club in New York on January 17, Richard Ketchum, Chairman and Chief Executive Officer of FINRA outlined exam priorities for 2012.
Mr. Ketchum acknowledged that these difficult markets, the search for yield, and the changing regulatory landscape due to the implementation of Dodd Frank can place “tremendous pressures” on firms, clients, and Compliance departments. But, at the end of the day, the mission of FINRA is to protect investors. He stated that he hoped that his remarks before the group of mostly attorneys and other compliance professionals would “ get your blood running, if not running cold,” as he encouraged everyone to “step up” to meet compliance challenges and respond in an honest way to the lessons we’ve learned over the last few years.
In the next few weeks, FINRA will release its Annual Exam Priority Letter. The following are a few advance highlights:
Complex Products – Heightened supervision is required with enhanced compliance procedures to ensure that reps, supervisors, and retail investors understand complex products. See Regulatory Notice 12-03 for details.
Supervision – Firms must demonstrate responsibility for all business lines they engage in, in spite of increased difficulty, complexity, and customer frustrations with return on investments. Firms must demonstrate proper supervision.
Suitability – Changes to FINRA “Know your customer” Suitability are rules going into effect July 9th. Examiners will review the steps firms are taking to prepare for changes and implementation once rules are in effect. See Regulatory Notice 11-25 for details.
Data Security – In light of sophisticated attacks against firms, FINRA is looking for equally significant defenses, including attention to emerging markets.
Social Media – FINRA has issued two notices, Regulatory Notice 10-06 Guidance on Blogs and Social Networking Web Sites and Regulatory Notice 11-39 Guidance on Social Networking Websites and Business Communications. Examiners will focus on the supervision and recordkeeping of all business communications, regardless of device; the pre-approval of static content; supervision of interactive content on a risk basis; and the adoption and entanglement of third-party content resulting in a firm being responsible for that content. Furthermore, FINRA examiners will check whether a registered principal of the firm has reviewed social media sites before they are launched; if there are links to third-party sites with false or misleading content; that firms have established policies to ensure the accuracy of third-party data feeds; and when firms allow the use of personal devices, they must demonstrate the ability to supervise and keep records of those business communications.
Mr. Ketchum noted that FINRA welcomes continued feedback from the industry on any and all issues and is looking forward to a three-way conversation - specifically about social media and FINRA, the industry, and the SEC — that sets so much of the record-keeping requirements in the industry.
So, watch for FINRA’s Annual Exam Priority Letter soon and continue to take a careful look at how your firm is complying with FINRA rules, including following FINRA’s guidance on social media. And consider writing a letter to Mr. Ketchum and FINRA to share your key learnings as you begin to deploy social media within your enterprise.
