On October 16, 2019, the Financial Industry Regulatory Authority (FINRA) published its 2019 Report on FINRA Examination Findings and Observations. The report reflects key findings and observations identified in recent examinations and contains effective practices to help firms improve their compliance and risk management programs.
Key examination findings noted in the report are listed below:
- Insufficient Written Supervisory Procedures (WSPs) for New or Amended Rules – Some firms did not update their WSPs to adequately address newly adopted or amended rules applicable to their business.
- Use of Prohibited Digital Channels – Some firms prohibited the use of certain messaging or social media applications but did not maintain a process to reasonably identify and respond to red flags indicating that registered representatives were using impermissible digital channels in connection with firm business.
- Inadequate Anti-Money Laundering (AML) Transaction Monitoring – Some firms did not tailor their transaction monitoring to address specific risks posed by the firm’s business, had deficient monitoring for suspicious trading and possible related money-laundering activity, or had an overreliance on clearing firms for transaction monitoring and suspicious activity reporting.
- Deficient Business Continuity Plans (BCPs) – Some firms maintained BCPs that did not identify all of their mission-critical systems or did not update their BCPs for operational changes or changed contact information.
- Best Execution – Some firms did not conduct assessments of their execution quality against competing markets, conduct adequate reviews of certain order types or adequately consider and address potential conflicts of interest related to the routing of orders to affiliated alternative trading systems or market centers that provide payment for order flow.
- Segregation of Client Assets – FINRA noted certain deficiencies with respect to inadequate possession or control processes, such as the inability to identify deficits in fully paid and excess margin securities as a result of formula errors, and a failure to confirm that fully paid securities were correctly segregated at custodian banks.
The full FINRA report can be found here.