Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues. Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.
Both FINRA and the SEC OCIE staff recently released their 2020 examination priorities. Today’s list summarizes their 10 most significant concerns for investment managers and broker-dealers. New areas this year include Regulation Best Interest, digital assets and cash sweep programs. Some longtime favorites include anti-money laundering, best execution, and retail sales practices. Compli-pros should use these letters to prepare their compliance programs and exam readiness.
10 Most Significant 2020 Examination Priorities
- Compliance programs. OCIE’s overriding concern is assessing whether compliance is actively engaged in firm operations and whether the CCO is knowledgeable and empowered. FINRA wants firms to evaluate the “state of their compliance, supervisory and risk management programs.”
- Regulation Best Interest. Both OCIE and FINRA warn firms to implement new procedures and processes to comply with Regulation Best Interest, including Form CRS, and related interpretations.
- Retail Sales Practices. OCIE wants firms to re-consider disclosure, sales practices and conflicts of interest when advising retail clients. FINRA adds supervision and focuses on certain products such as private placements and variable annuities.
- Revenue Sharing. The regulators have serious reservations about advisers who have a financial interest in the products they recommend.
- Information Security. Firms need to assess systems, technology governance, and testing to ensure the protection of clients’ personal information.
- Trading Practices. FINRA will target market manipulation practices, mark-ups/mark-downs, short sales, short tenders, and TRACE reporting.
- Digital Assets. OCIE worries that firms may not understand the differences between digital assets and more traditional products. The examination staff will review suitability, trading, custody, valuation, and supervision.
- Anti-Money Laundering. Both regulators expressed concerns about how broker-dealers comply with their anti-money laundering obligations.
- Cash Sweep. FINRA wants firms to consider how they communicate features and options and how the programs operate.
- Best Execution. Always a perennial favorite, FINRA will focus on routing decisions, odd-lots, and options.