Investment bankers, dealmakers, and independent placement agents are, rightfully, keenly sensitive to receiving a clean bill of health from FINRA. In this article, we break down FINRA facts and trends in 2024 to help you stay prepared to get the FINRA check.
Released in January 2024, the 2024 FINRA Annual Regulatory Oversight Report, formerly known as the Report on FINRA's Examination and Risk Monitoring Program, offers essential insights and observations gleaned from recent activities within FINRA's regulatory operations.
Why is the 2024 FINRA report significant?
The 2024 FINRA report is indispensable for U.S. dealmakers, offering crucial insights from FINRA's Member Supervision, Market Regulation, and Enforcement programs, aiding dealmakers in understanding and addressing regulatory requirements effectively.
Comprehensively spanning 26 topics across six sections, including Financial Crimes, Crypto Asset Developments, and Market Integrity, the report introduces new focal points like crypto assets, AI as an emerging risk, and cybersecurity trends. Aligning FINRA's findings with the SEC's examination priorities, dealmakers can fortify compliance programs, ensuring their firm’s activities align with the evolving regulatory landscape.
2024 FINRA report key findings
The 2024 FINRA report is designed to be a valuable resource for member firms seeking to fortify their compliance programs by drawing insights from FINRA's oversight activities. Below are key takeaways:
1 - Technology management and financial crime:
FINRA emphasizes the importance of technology management and its impact on firms' regulatory obligations. It provides guidance on various aspects of technology management, such as data backups, vendor management, and regulatory considerations related to artificial intelligence.
Regarding financial crime, the report underscores the increasing sophistication of attempts at digital fraud, the presence of tech-savvy criminals, and heightened regulatory scrutiny. These factors necessitate an augmented use of technology to enhance efficiency and effectiveness in identifying and mitigating financial crime risks. The report emphasizes proactive prevention in the digital era, highlighting that nearly all organizations conduct business online, expanding attack surfaces and rendering businesses vulnerable to cyberthreats and cybercrime.
2 - New topics:
The report introduces new topics such as crypto assets, AI as an emerging risk, and cybersecurity trends. Here are some detected trends:
- Cybersecurity and technology governance:
FINRA highlights the persistent threat of cybersecurity to financial services firms, emphasizing the increase in the variety, frequency, and sophistication of cyber incidents, including imposter websites, insider threats, ransomware, and events at critical vendors.
- Cryptocurrency asset developments:
The report provides considerations for firms involved in or considering crypto-related activities, addressing regulatory and compliance challenges and risks. These include supervisory programs and controls, compliance policies and procedures, cybersecurity, AML compliance, communications with customers, manipulative trading, due diligence on crypto asset private placements, and supervising associated persons’ involvement in crypto asset-related activities and transactions
- Regulation Best Interest (Reg BI) and Form CRS:
The report underscores that Reg BI and Form CRS remain focal points across FINRA’s regulatory operations programs, addressing areas such as making recommendations adhering to Reg BI’s Care Obligation, identifying and addressing conflicts of interest, and disclosing all material facts related to conflicts of interest to retail customers.
The report identifies considerations for assessing and documenting "reasonably available alternatives" when making recommendations. Firms are expected to comprehend how to consider reasonably available alternatives and when to document these considerations.
According to FINRA it is crucial for dealmakers to stay informed about evolving regulatory priorities and emerging risks, enabling proactive integration into their compliance programs and business activities.
3 - Regulatory focus areas:
FINRA also disclosed specific areas where firms can expect scrutiny during upcoming FINRA examinations, facilitating preparation and ensuring compliance with regulatory expectations.
Among the key areas of focus for upcoming exam expectations highlighted on the report, there are the off-channel communications. Firms should be prepared to address questions regarding their communications policies and procedures during FINRA exams, with a specific focus on off-channel communications. Regulation Best Interest and crypto asset securities business lines will also be in focus.
How can Finalis help you with the FINRA check?
Dealmakers can leverage FINRA's valuable insights as a strategic ally to enhance their compliance efforts. And at Finalis we cover key essential strategies:
- Understanding and adhering to FINRA regulations:
Firms can utilize FINRA's insights to bolster compliance by gaining a comprehensive understanding of and adherence to FINRA regulations. This involves familiarizing themselves with specific FINRA rules and regulations applicable to their activities.
Conducting a thorough assessment of current operations, processes, and policies is essential to identify any gaps or areas of non-compliance. This holistic examination provides a foundation for implementing targeted improvements. At Finalis, we can assist you with this process.
- Tailoring a robust compliance program:
Firms are encouraged to develop and implement a robust compliance program tailored to their organization's size, structure, and business activities. This program should include well-defined written policies and procedures addressing key areas such as sales practices, supervision, record-keeping, anti-money laundering (AML), and cybersecurity.
- Engaging with the right legal professionals:
To ensure effective oversight, firms should designate a qualified compliance officer or team responsible for the implementation and ongoing management of their compliance program. This step is integral to fostering a culture of compliance within the organization and to enable a good relationship with FINRA.
- Staying informed and adaptable:
To stay current with evolving compliance requirements, firms should stay vigilant about changes to FINRA rules, interpretations, and guidance. This involves monitoring regulatory alerts, industry publications, and participating in relevant training programs or conferences.
Incorporating these strategies will empower dealmakers to align with FINRA as a supportive ally, thereby strengthening their compliance programs and navigating the regulatory landscape with confidence.
Not sure where to start? Contact us and be ready to obtain your FINRA check.
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