Held once again at the Marriot Marquise in Washington DC, the 2019 FINRA National Convention offered member firms an opportunity to hear from (and rub shoulders with) the top brass of FINRA, SEC and MSRB. There was also a large contingent of SRO employees in attendance, helping with panel discussions and manning booths where members could view exhibits from FINRA and the MSRB.
Topics brought up at the conference ranged from the basic (how will FINRA examine my branch) to the latest (what can I do to protect my firm from cyber issues). Below, in no particular order, are a few of the topics that seemed to permeate the conference.
Regulation Best Interest (Reg BI): During one of the plenaries where members forwarded questions to the panel, Robert Colby, Executive Vice President of FINRA, joked that the number of questions centered around Reg BI could take up the entire session. However, because no time had been announced for the implementation of the Rule, answers from the panel were generalized. Panelists recommended that dealers identify conflicts, disclose those conflicts, and mitigate those conflicts. They also recommended that a firm’s corporate board should, if possible, be “nose in, fingers out”, while setting a compliant tone from the top.
Reg BI has been since been finalized and was announced in the SEC’s recent release, 2019-89.
Mark-up and Mark-down: On the one year anniversary of the release of the MSRB’s changes to Rules G-15 and G-30 requiring certain mark-ups and mark-downs to be disclosed on account confirms, FINRA and the MSRB seemed in agreement (along with many member firm panelists) that initial anxiety over the rule was overblown, and, as one panelist said, “a non-event”.
Common findings by FINRA when examining some 200 firms data showed exceptions that included:
Traders improperly entering information into trading systems;
Dealers assuming that their clearing firms were handling all aspects of the requirements;
Retail accounts improperly marked as institutional accounts;
Mark-up being calculated as only the amount of commission paid, as opposed to the difference between a firm’s cost and the customer’s cost; and
Failure to include the required URL on the confirm pointing the account to information about the bond on the EMMA web site.
Focus on the “Bad Apples”: FINRA stated several times during the conference that a focus of the authority will be to go after that very small percentage of the industry that causes the most problems. The Chair of the SEC is proposing changes to capital requirements based on the risk posed by certain firms that show a preponderance to hire risky reps. Firms would do well to pay attention to their “heightened supervision” policies.
Social Media and the Changes that are coming with it: This topic was widely discussed at the conference, with sessions devoted not only to emerging fintech trends, but also specifically to social media and digital communications. Too large to cover here in detail, sessions included “the rapidly changing world of digital communications, compliance” and “supervision of text and instant messages, social media and email”. Suggested sources to learn more about this area and the SROs’ guidance should refer to MSRB Notice 2019-07, SEC National Exam Program Risk Alert (December 2018), and FINRA Regulatory Notice 17-18: Social Media and Digital Communications.
Outside Business Activities (OBAs): The subject of OBAs came up frequently in the plenaries as well as having an individual session devoted to it (Outside Business Activities and Private Securities Transactions). FINRA believes that OBAs and private securities transactions continue to be regulatory and examination priorities due to their contribution to conflicts of interest at firms. Mention was also made of proposed changes to the rules regarding OBAs, in which FINRA will attempt to focus in on risks posed by certain OBAs and not by others (e.g. driving for Uber).
Consolidated Audit Trail (CAT): CAT is coming- FINRA recently issued Notice 19-19, with the following wording “FINRA is issuing this Notice to remind firms they must register with FINRA CAT, LLC (FINRA CAT) for reporting to the Consolidated Audit Trail (CAT). CAT registration commenced on March 18, 2019, and will run through June 27, 2019. All Industry Members, as defined under the CAT NMS Plan, that will have a CAT reporting obligation must register during this window”.
In response to a question from the floor, a FINRA panelist stated that CAT will eventually replace the current OATS system.
For questions about these and other topics discussed at the 2019 FINRA National Conference, contact H. Deane Armstrong, CEO Armstrong Compliance Solutions
610-996-8904