Monday, January 6, 2014

FINRA Regulatory Priorities 2014

By Tim Dulaney, PhD, FRM and Tim Husson, PhD

Early this month, the Financial Industry Regulatory Authority (FINRA) released their 2014 regulatory and examination proirities (PDF).  FINRA is continuing to focus on the suitability of recommendations made to retail investors.  FINRA specifically mentions complex structured products (including leveraged ETFs), non-traded REITs, frontier funds, and interest rate sensitive instruments such as mortgage-backed securities and municipal bonds.  At a recent conference, a FINRA representative added that the regulator will also be looking at custom or user-defined structured product platforms, as well as sales practices to the elderly or those with diminished capacity, as reported by Risk.net.

FINRA also plans to broaden the "High Risk Broker" program that uses expedited examinations to target brokers who have a pattern of complaints.  In particular, the practice of 'cockroaching', when brokers with a large number of complaints switch brokerage firms, will come under intense scrutiny.

FINRA specifically mentions that algorithmic trading and high frequency trading (HFT) will be in their crosshairs in 2014.  In particular, FINRA wants to ensure that firms are meeting their supervisory obligations and preventing the use of HFT to manipulate markets.  HFT was a hot topic in 2013, especially related to the early release of economic data to fee-paying HFT firms, and remains highly controversial.

We've been seeing a large volume of cases come across our desks that touch on each of these topics.  Whether it is an ultra high net worth investor with a portfolio full of investments the broker doesn't even understand or a recent retiree bilked out of their life-savings, we think these priorities are hitting the nail squarely on the head.

No comments:

Post a Comment

Please keep comments appropriate. Malicious comments or solicitations will be removed.