Securities Litigation

On February 1, 2021, the Financial Industry Regulatory Authority (“FINRA”) released its “Report on FINRA’s Risk Monitoring and Examination Activities.”  The Report combines two of FINRA’s long-standing reports:  (a) the retrospective Report of Examination Findings from the prior year; with (b) its forward-looking Examination Priorities Letter.

The new format is more user-friendly for supervision and compliance professionals than the prior reports, setting out for each topic:

• Regulatory Obligation with citation to relevant rules;
• Related Considerations, formatted as questions firms should ask themselves;
• Exam Findings and Effective Practices, calling out the good and the bad FINRA found in its prior year's examinations; and
• Additional Resources, containing citations to related guidance.

Throughout, shaded boxes call attention to various Emerging Issues, for example:

• AML and Financial Crime Risks address issuers in restricted jurisdictions (e.g., China), together with microcap and SPAC risks.
• Outside Business Activities risks notes reporting obligations in connection with Registered Representatives who take PPP loans.
• Social media platforms, including the “gamification” of trading
• Targeted Examinations on zero commission risks and disclosures.

In past years, FINRA has addressed issues related to Supervision and Senior Investors separately.  The new Report weaves them into discussions of other topics.

The broad categories of issues addressed in the Report are:

Firm Operations

• AML
• Cybersecurity
• Outside Business Activities
• Books and Records
• Regulatory Events Reporting
• Fixed Income Mark-Up Disclosure

Communications and Sales

• Reg. BI and Form CRS
• Public Communications
• Private Placements
• Variable Annuities

Market Integrity

• Consolidated Audit Trail
• Best Execution
• Large Trader Reporting
• Market Access
• Vendor Display Rule

Financial Management

• Net Capital
• Liquidity Management
• Credit Risk Management
• Segregation of Assets

The Report is here.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 34 years of experience representing financial institutions in litigation, regulatory, and compliance matters. See attorney profile.