On January 11, 2013, FINRA released its 2013 examination
priorities letter. Not surprisingly, FINRA
will continue to prioritize core regulatory areas such as AML compliance and
insider trading.
FINRA will also continue to focus on suitability and complex
products, highlighting in the letter FINRA’s recently revised suitability rule,
and adding business development companies (“BDCs”) and closed-end funds to its
list of complex products. FINRA warns
that BDCs expose investors to significant market, credit and liquidity risks
and the newer “non-traded BDC funds” can limit investors’ exit opportunities to
“periodic share repurchases by the BDC at high discounts.” FINRA also warns that some closed-end funds
are returning capital to maintain high distribution rates, causing the fund to
trade at high premiums compared to the fund’s NAV.
New to the list is FINRA’s focus on automated investment
advice programs. FINRA is concerned that
such programs, used to dispense automated investment advice to retail clients,
may not gather the necessary information attributes of the investor to
determine an investment profile, or that the platforms may fail to properly
match securities with the investor’s risk appetite.
Other areas included in the 2013 priorities letter that were
not in the 2012 letter include cyber-security and data integrity and alternative
trading systems. Notably, social media and electronic communications were among
the more significant items in FINRA’s 2012 letter that were not addressed in
the 2013 letter.
Firms subject to FINRA review should read the 2013 letter
(the link is provided below) and, with the assistance of counsel, ensure that
the firm has policies and procedures in place to effectively address the areas so
outlined.
http://www.finra.org/web/groups/industry/@ip/@reg/@guide/documents/industry/p197649.pdf
On January 11, 2013, FINRA released its 2013 examination
priorities letter. Not surprisingly, FINRA
will continue to prioritize core regulatory areas such as AML compliance and
insider trading.
FINRA will also continue to focus on suitability and complex
products, highlighting in the letter FINRA’s recently revised suitability rule,
and adding business development companies (“BDCs”) and closed-end funds to its
list of complex products. FINRA warns
that BDCs expose investors to significant market, credit and liquidity risks
and the newer “non-traded BDC funds” can limit investors’ exit opportunities to
“periodic share repurchases by the BDC at high discounts.” FINRA also warns that some closed-end funds
are returning capital to maintain high distribution rates, causing the fund to
trade at high premiums compared to the fund’s NAV.
New to the list is FINRA’s focus on automated investment
advice programs. FINRA is concerned that
such programs, used to dispense automated investment advice to retail clients,
may not gather the necessary information attributes of the investor to
determine an investment profile, or that the platforms may fail to properly
match securities with the investor’s risk appetite.
Other areas included in the 2013 priorities letter that were
not in the 2012 letter include cyber-security and data integrity and alternative
trading systems. Notably, social media and electronic communications were among
the more significant items in FINRA’s 2012 letter that were not addressed in
the 2013 letter.
Firms subject to FINRA review should read the 2013 letter
(the link is provided below) and, with the assistance of counsel, ensure that
the firm has policies and procedures in place to effectively address the areas so
outlined.
http://www.finra.org/web/groups/industry/@ip/@reg/@guide/documents/industry/p197649.pdf