The discussion topic for the luncheon was FINRA’s 2023 Priorities and Examination Findings, which was presented by a panel consisting of Robert Cook (President and CEO of FINRA) and Greg Ruppert (EVP of Member Supervision at FINRA). The panel was moderated by Saima Ahmed, SIFMA's EVP and General Counsel.
Below is a short summary of the panel discussion.
The five (5) main topics discussed were as follows:
1) FINRA’s New Year’s Resolutions
The panelists addressed FINRA’s enterprise goals for 2023, including:
- Continuing to integrate the activities of its “regulatory operations programs” which consist of FINRA’s Member Supervision, Market Regulation, and Enforcement programs;
- Leveraging data and intelligence between FINRA’s various parts;
- Enhancing its talent; and
- Increasing engagement with its membership and stakeholders, including getting feedback.
2) FINRA’s top policy objectives
The panelists identified a number of different rulemaking objectives in areas including:
- Reflecting on the way the typical work space for Member Firms is changing;
- Transparency in TRACE reporting, and dissemination of TRACE reporting;
- Transparency in Fixed Income, including OTC options;
- Maintenance of Dispute Resolution Rules;
- Operations, including maintaining liquidity of Member Firms; and
- Fostering Member Firms’ abilities to engage in capital formation.
3) FINRA’s recently published 2023 Report on Examination and Risk Monitoring Program (the “Report”)
The panel covered the structure, purpose and organization of the Report, and highlighted the following sections:
- Financial and Cyber Crimes
The panelists noted that insomuch as firms, clients and vendors are increasing their use of technology to deliver and receive services, the means by which fraud is perpetrated on investors has adapted and gravitated to the digital world. Therefore, firms also must adapt and configure procedures, training, surveillance controls and supervision to identify, prevent and mitigate technology-driven fraud. The panelists also referenced FINRA Regulatory Notice 22-29 (FINRA Alerts Firms to Increased Ransomware Risks). The panelists also identified account intrusions as a problem, as well as “pig butchering” scams, such as those involving purported investments in foreign IPOs. The panelists referenced FINRA trading Report Cards as tools to help combat fraud.
The panelists identified the increased activity in this space and identified that criminal groups are becoming more experienced and active in perpetrating schemes to affect trading.
- Supervision and Retention of Off-Channel Communications
The panelists identified the SEC’s recent large settlements with firms relating to their supervision of employees’ unauthorized business communications and made clear that firms continue to have a clear obligation, regardless of the mode of communication, to retain written communications that relate to the firms’ “business as such.” They also stressed that firms have the duty to undertake “reasonable” supervision, including having clear policies and procedures, and ascertaining whether a new platform is being utilized or proposed for written communications, and whether that would create red flags. The panelists encouraged Member Firms that are unsure about the adequacy of their supervisory programs in this space to engage with FINRA and request guidance. They noted that the firms have an obligation to “get it right,” especially in light of the challenges posed by the proliferation of modern electronic communications channels.
4) FINRA’s Rule proposals regarding Remote Inspection Pilot Program and Residential Supervisory Location
The panelists commented that these two proposals have received significant attention from the industry, noting that they are consistent with FINRA’s efforts to adjust to the reality of how and where people are now working, including how firms are leveraging technology to undertake surveillance and supervision. The Panel reiterated that bad actors also continue to develop new technologies to engage in fraud or other wrongdoing, noting recent guidance FINRA issued in Regulatory Notice 22-18 (Digital Signatures Forgery and Falsification).
5) The SEC’s robust regulatory agenda, including Proposed Rules regarding Best Execution
The panelists specifically identified the SEC’s proposed rules on Best Execution, stating that the proposed rules contained similar features to FINRA’s existing rule. Without committing, the panelists noted that if the SEC adopted its rule, FINRA might be inclined to take the position (potentially in a FINRA rule amendment) that compliance with the new SEC rules constitutes compliance with FINRA’s rule, similar to the dynamic adopted by FINRA with regard to the SEC’s Regulation Best Interest.
Client Alert 2023-020
