This January, FINRA published the 2023 Report on FINRA’s Examination and Risk Monitoring Program. The Report provides essential guidance for compliance officers and is devised to inform member firms’ compliance programs by delivering annual insights from FINRA’s ongoing regulatory operations. In a press release, Greg Ruppert, EVP of Member Supervision at FINRA, stated: “This Report represents a holistic approach to FINRA regulation, leveraging information from across our regulatory operations to provide member firms with information to help them enhance their core compliance programs. The Report addresses topics that remain perennially important, with updates to reflect evolving risks, industry trends and findings from FINRA’s recent oversight activities. This year, we have also increased the breadth of the Report’s coverage by adding several new topics focused on insights originating in our market surveillance activities.”

The comprehensive Report from FINRA’s regulatory operations covers twenty-four topics (including four new topics) organized into five sections: Financial Crimes; Firm Operations; Communications and Sales; Market Integrity; and Financial Management.

The Report introduces a new Financial Crimes section, underscoring FINRA’s increased focus on protecting investors and safeguarding market integrity against these ongoing threats. This new section consists of three topics: Cybersecurity and Technological Governance; Anti-Money Laundering, Fraud and Sanctions; and Manipulative Trading. The latter topic is new for 2023 and includes findings on inadequate written supervisory procedures, non-specific surveillance thresholds, and surveillance deficiencies.

The Report’s section on market integrity includes three additional new topics:

  • Fixed Income – Fair Pricing. Among the findings are incorrect determination of prevailing market price, outdated mark-up/mark-down grids, failure to consider the impact of mark-up on yield to maturity and unreasonable supervision.
  • Fractional Shares. Reporting failures and inadequate supervisory systems and procedures are among the findings.
  • Regulation SHO. This section includes findings on non-bona fide market making and impermissible reuse of locates.

 

FINRA’s latest Report reinforces the breadth and depth of FINRA’s rules and reveals practices member firms ought to consider for maintaining effective compliance programs. Member firms should review the Report to identify potential gaps and areas for enhancement in their compliance programs and supervisory controls. Moreover, firms should use the Report in their preparation for regulatory exams and pay close attention to emerging areas of risk pertinent to their business operations and practices.

FINRA Audit Guide