This February, FINRA released the 2022 Report on its Examination and Risk Monitoring Program. The report is designed to inform member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations. In a press release, Greg Ruppert, executive vice president, member supervision, stated: “Today’s securities industry landscape is highly dynamic in terms of business models, technologies, products and compliance practices. This Report looks at these significant changes through the lens of FINRA’s commitment to investor protection and market integrity, so that firms’ compliance programs can benefit from our findings about emerging and ongoing issues.”

Of the 21 topic areas, the report highlighted the following:

  • Regulation Best Interest (Reg BI) and Form CRS (customer relationship summary)
  • Consolidated Audit Trail (CAT)
  • Order Handling, Best Execution, and Conflicts of Interest
  • Mobile Apps
  • Special Purpose Acquisition Companies (SPACs)
  • Cybersecurity
  • Complex Products

New topics for 2022 include:

  • Firm Short Positions and Fails-to-Receive in Municipal Securities
  • Trusted Contact Persons
  • Funding Portals and Crowdfunding Offerings
  • Disclosure of Routing Information
  • Portfolio Margin and Intraday Trading

 While FINRA’s discussion on each of these topics is essential to review, your team should start with reviewing their “Appendix – Using FINRA Reports in Your Firm’s Compliance Program.” This appendix is designed to help firms use the Report in developing and improving their compliance programs. Based on feedback from member firms, the appendix outlines how firms have used similar FINRA reports to strengthen their compliance programs. Using these “best practices” as a resource, consider adopting those that align with your business model. The appendix is a valuable guide for implementing change in your firm’s compliance program.

We’ve summarized the key takeaways:

  • Conduct a comprehensive review of the findings, observations, and practices, focusing on those areas applicable to your business.
  • Incorporate the Report’s highlighted topics into your overall risk assessment processes and compliance program review.
  • Perform a gap analysis to evaluate how your compliance program and written supervisory procedures address the questions raised in the Report to help prevent similar findings.
  • Create project teams and workflows to facilitate compliance program enhancements.
  • Keep your compliance teams informed by circulating relevant publications.
  • Ensure your leadership is engaged by presenting your action plans to address questions and findings.
  • Leverage FINRA’s reports (findings, observations, and effective practices) as a means of guidance and training for your staff.

Your firm needs to be proactive in identifying and mitigating observed deficiencies in your compliance program. We maintain that the time between examinations is the ideal window for improving your risk management and compliance processes. In addition to using the 2022 Report on FINRA’s Examination and Risk Monitoring Program to enhance your compliance efforts, consider leveraging regulatory compliance technology tools to help your team effectively and proactively run your compliance program. The more prepared your firm is for a member firm examination, the more successful the examination.

FINRA Audit Guide