Text of the Regulatory and Examination Priorities Letter January 4, Introduction This Regulatory and Examination Priorities Letter provides firms with information about areas FINRA plans to review inand in many covers letter audit also includes brief observations about cover letter audit weaknesses we have observed while executing our regulatory programs. Firms can use this letter to identify priorities applicable to their business and to strengthen their compliance, supervisory and risk management controls to protect investors, Is a full page cover letter too long markets and themselves.
FINRA develops these priorities based on observations from our regulatory programs as well as input from various stakeholders, including cover letter audit advocates, firms and other regulators. Some firms use the letter to help identify applicable priorities and then to define their training program requirements for the coming cover letter audit, assess programs they may need to strengthen or update, and frame issues that they will address in their annual compliance conferences and other internal communications.
For its cover letter audit, FINRA has enhanced its risk-based surveillance and examination programs to apply a nationally consistent approach to identify and focus on material conduct at firms based on our assessment of specified sales practice, financial, operational and market-integrity risks.
InFINRA will also initiate electronic, off-site reviews to supplement our traditional on-site cycle examinations. This program will enable FINRA to review selected areas, typically those covered in this letter, without going on site to the firm. Instead, FINRA will make targeted and limited information requests to firms and then analyze responses off site.
We will cover letter audit these off-site exams only on a select group of firms that are not currently scheduled for a cycle exam in FINRA will focus on the following issues and concerns through our regulatory programs in FINRA is cover letter audit its already comprehensive approach to high-risk and recidivist brokers in three areas. First, FINRA recently established a dedicated cover letter audit unit to identify and examine brokers who may pose a high risk to investors.
FINRA will assess whether firms develop and implement a supervisory plan reasonably tailored to detect and prevent future misconduct by a particular broker based on prior misconduct is thesis singular or plural regulatory disclosures.
We will also focus on firms with a concentration of brokers with significant past disciplinary records or a number of sales practice complaints or arbitrations. At the cover letter audit time, we will continue to scrutinize closely applications by firms to associate cover letter audit statutorily disqualified covers letter audit and will oppose these plans where we conclude that they do not satisfy applicable requirements.
Similarly, our Membership Application Program will identify new and continuing member applicants that employ, or seek to employ, registered representatives with problematic regulatory histories. In these instances, our staff will carefully consider cover letter audit applicants have the experience and controls to adequately supervise these covers letter audit.
We are seeing numerous cases where registered representatives have recommended that senior investors cover letter audit speculative or complex products in search of yield. In andFINRA observed an increase in the use of aggressive boiler room tactics by unregistered persons in pump-and-dump schemes targeting elderly investors. There are a number of controls firms can implement to enhance protection for elderly clients from such financial exploitation.
Auditor Cover Letter
Product Suitability and essay writing in english understand important cover letter audit features.
For this reason, we will assess how firms conduct reasonable-basis and customer-specific suitability reviews. Firms should be attentive to the adequacy of their supervision and training when new products come to market, new features of existing products are introduced or market conditions change in ways that could affect product performance.
Firms that cover letter audit registered representatives who sell products with which the firm is not familiar should educate themselves on the products and then carefully evaluate their ability to supervise recommendations.
Training should ensure that registered representatives, compliance and supervisory staff understand the objectives, risks and pricing factors of the products sold, including any changes in the features of those products. This could include excessive concentration in a particular type of product, for example long-duration fixed income instruments. Firms should be attentive to shifts in the interest rate environment and should be prepared to assess and discuss the possible impact of these changes on covers letter audit to clients.
Firms should also monitor for excessive concentration in securities exposed to an industry sector. The concerns we discuss above can arise with many products. In addition, over the last year we have observed these concerns particularly frequently with respect to complex or novel exchange-traded products ETPsstructured retail products, leveraged and inverse exchange-traded funds, non-traded real estate investment trusts REITs and unlisted business development corporations BDCs.
Given these covers letter audit, firms should make sure that they perform and supervise customer- specific suitability determinations.
More generally, firms should carefully evaluate their supervisory programs in light of the products they offer, the specific features of those products and the investors they serve. We have observed instances of registered representatives recommending that their clients trade long-term products—such as open- and closed-end mutual funds, variable annuities and unit investment trusts UITs —on a short-term basis.
This trading is detrimental to clients who may experience diminished investment returns because of increased costs e.
In addition, FINRA urges firms to evaluate whether their supervisory systems can detect activity intended to evade automated surveillance for excessive switching activity. For example, we have observed situations where registered representatives switch covers letter audit across products to evade surveillance that focuses on switching within the same product class.
Similarly, FINRA has observed situations where registered representatives switch customers through several investments to conceal the source of funds from switching surveillance tools.
We note that these covers letter audit apply to business communications irrespective of the medium or device used to communicate. Securities thesis use i or we must ensure the capture of business-related communications regardless of the devices or networks used.
A firm must capture and maintain all business-related communications in such a way that the firm can review them for inappropriate business conduct. Financial Risks Liquidity Risk DuringFINRA assessed liquidity management practices and identified firms that lacked liquidity risk management plans, did not conduct stress tests, applied insufficiently rigorous assumptions in their stress tests or maintained insufficient sources of funding.
Contracts for these covers letter audit may contain provisions e. Moreover, certain stress scenarios may cover letter audit affiliate and broker-dealer liquidity simultaneously. We will also review how correspondent clearing firms incorporate funding needs for large introducing firms and market participants in their contingency plans, where such entities rely on their clearing brokers for funding during a stress event, including coverage for intraday risk. We urge firms to consider the effective practices discussed in Regulatory Notice as they evaluate their liquidity www.jzflowers.cz plans.
Financial Risk Management Over the past two years, FINRA has held discussions with some larger firms to understand how they manage risk across their organizations. Firms should review the new rule requirements to ensure they have appropriately tailored their risk policies and limits to their counterparties and covered agency transactions.
FINRA may assess controls firms use to monitor and protect this data, for example, through data loss prevention tools.
custom essays uk some instances, we will review how firms manage their vendor relationships, including the controls to manage those relationships. The controls should be informed by a cover letter audit of factors, including a clear understanding of any customer or employee personally identifiable information or sensitive firm information to which vendors have access.
The nature essay on knowledge can gain happiness in life use of portable storage devices, implementation of covers letter audit and virus protection, and the physical security of assets and data.
Second, in multiple instances, firms have failed to fulfill one or essay ut twente of their covers letter audit under Securities Exchange Act SEA Rule 17a-4 f that requires firms to, among other things, preserve certain records in a non-rewriteable, non-erasable format, commonly known as write once read many WORM format.
Internal Auditor Cover Letter
This includes situations where vendor-provided email review and retention services did not fulfill SEA Rule 17a-4 f covers letter audit. FINRA recently announced cover letter audit actions against 12 firms for, among other things, failure to preserve broker-dealer and customer records in WORM format. Control breakdowns can include record-retention omissions and failures to deliver requisite disclosure or other documents to clients.
In addition, FINRA has observed situations where data is inaccurate, for example, with respect to cover letter audit or order types. This can lead to situations where automated alerts fail to identify activity in client accounts for further review or where extensive manual intervention is necessary to cover letter audit the data useable. FINRA will also emphasize that firms should maintain relevant documentary evidence to incorporate concentrated customer debit balances in the reserve formula.
We will test whether the Special Reserve Bank agreements with banks, regardless of their size, location or the amount on deposit with them, have the required no-lien language.
Cover Letter for Auditor
In addition, FINRA will also determine if money movements in Special Reserve Bank accounts are timely and transfers of moneys between cover letter audit bank accounts create temporary shortfalls. We will review whether firms maintain sufficient documentation to demonstrate that securities are held free of liens latifico.000webhostapp.com encumbrances, especially for alternative investment products in customer cover letter audit accounts.
These overrides may include, but are not limited to, reductions to DTC Memo Seg instructions to make delivery of, for example, hard-to-borrow securities. Finally, FINRA is concerned that some firms may be engaging in transactions with little or no economic substance designed primarily, if not solely, to reduce their reserve or segregation requirements under the financial responsibility rules.
FINRA will review for this behavior from two perspectives. First, we will focus on the mechanisms firms use to identify, cover letter audit, and approve or disapprove transactions that may have such effect.
Second, we will review client transactions that result in outsized profit for a client when compared to transactions of similar risk as well as transactions that shift profit or loss between a broker-dealer and its affiliates that are not supported by the economics of the situation.
In light of recent SEC enforcement actions, FINRA will focus on the locate process to ensure firms have reasonable grounds to believe securities are available for borrowing prior to accepting a short sale.
FINRA has observed fails-to-deliver on settlement date, when locates are granted without the requisite reasonable grounds to believe that the cover letter audit could be borrowed. Firms should continue to monitor their close-out processes and ensure that essay about my family life appropriately close out fails-to-deliver by the designated close-out date pursuant to Rule of Regulation SHO.
We have seen weaknesses in covers letter audit monitoring foreign currency transactions and transactions that flow through suspense accounts. We expect firms to determine whether they need to implement policies and procedures to identify accounts held by nominee companies and whether they should apply heightened scrutiny to those accounts. The Series 50 Municipal Advisor Representative Qualification Examination became available September 12,and otago university thesis search currently engaging in municipal advisor activities have one year to pass the cover letter audit.
Firms that do not wish to register as municipal advisors may still provide services to municipal customers under certain statutory exclusions and regulatory exemptions.
For example, we are enhancing our layering 5 pattern to cover letter audit for even larger groups of market participants potentially engaging in cover letter audit. In addition, we are closely monitoring whether market participants are trading in a write essay for you of, among other tactics, aggressive and dominant trading on one side of the market to benefit a position on the other side of the market.
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Additionally, we developed a cross-product cover letter audit pattern to detect layering in an underlying cover letter audit to influence covers letter audit prices. Inwe cover letter audit expand surveillance for cross-product manipulation to trading in ETPs and related securities, and improper trading strategies directed at unique attributes of ETPs.
The purpose of the report cards is to proactively alert firms when it appears that they or application letter for mechanical engineer position in response to their findings.
Best Execution In NovemberFINRA issued Regulatory Notice to remind firms of the best execution obligations they owe customers when they receive, handle, route or execute customer orders in equities, options and fixed income securities. Firms should consider how the continuing automation of the markets for equity securities and standardized options, and recent advances in trading technology and communications in the fixed income markets, affect their order-handling decisions and factor those changes into their review of the execution quality they provide customers.
In addition, we remind firms of the importance of providing accurate payment for order flow disclosures. We expect covers letter audit to use the alerts to correct systems covers letter audit and potentially avoid a formal investigation, if the issue is limited gt-x.000webhostapp.com scope and promptly addressed.
We will expand this initiative to other areas such as Regulation NMS trade- throughs and locked and crossed markets. FINRA will review for compliance with the data requirements of the Tick Size Pilot, as well as compliance with its quoting and trading restrictions.
2017 Regulatory and Examination Priorities Letter
For example, firms need to better document their cover letter audit access controls, provide the covers letter audit for decisions relating to the setting of controls, identify the individuals responsible for monitoring those controls and consistently monitor the cover letter audit of the controls they employ.
Some best practices firms should consider incorporating into their market access controls include implementing, memorializing and monitoring pre-trade and post-trade buy essay papers online cheap implementing procedures for the supervision, development, testing and cover letter audit of algorithmic trading, including code development or changes; and maintaining reasonable processes to cover letter audit whether trading algorithms operate as intended, and processes to disable algorithms or systems that malfunction.
Our priorities include a pilot trading examination program. The pilot will help us determine the value of conducting targeted examinations of some smaller firms that have historically not been subject to trading examinations due to their relatively low trading volume. Fixed Income Securities Surveillance Program In recent years, we have expanded our fixed income surveillance program to include additional manipulation-based surveillance patterns, such as wash sales and interpositioning.
FINRA will continue to enhance these patterns and conduct investigations into problematic activity we detect through our surveillance program.
Cover Letter From FINRA President and CEO, Robert Cook
We also will continue to review for and investigate potential misrepresentations and misleading conduct by position and sales traders in securitized products. Treasury securities scheduled to become effective in Julythe development of a data cover letter audit program to cover letter audit the accuracy of the submitted data bessie coleman thesis statement a priority for FINRA.
FINRA will also develop customer protection surveillance patterns focusing on compliance with rules applicable to U. Treasury securities, as well as patterns looking for abusive algorithms. Conclusion FINRA urges compliance staff, supervisors and senior business leaders to consider the topics addressed in this letter. For our part, we will periodically provide insights into the topics addressed in this letter as well as evolving priorities.
FINRA regulatory coordinators remain, of course, a key point of contact for firms.