Brace for Impact: It’s Going to be (Another) Busy Year for FINRA

F. Scott Fitzgerald said “There are only the pursued, the pursuing, the busy, and the tired.” FINRA may be all of these in 2022, as FINRA CEO Robert Cook announced FINRA’s laundry list of priorities during a SIFMA Q&A last week. Below are some of the highlights from his Q&A.

Exam Time: Annual Exam and Risk Monitoring Findings

While Mr. Cook advised the “ink isn’t dry” on the 2022 priorities, he suggested broker-dealers can expect more of the same, with some new additions. New topics for examination will include: trusted contact person, disclosure of order routing, and intra-day trading.

Firms should expect FINRA to continue its focus on Reg BI and Form CRS, complex products generally, CAT compliance, and best execution—especially in the era of firms charging retail investors zero commission.

Mr. Cook emphasized that the purpose of the upcoming report is to “highlight where firms fall short” while taking into account member firms’ feedback. This blog has covered FINRA’s annual report in the past, and will provide a summary of this year’s report once available.

You’re on Notice

FINRA expects to issue a number of notices. The most high profile of these concern cryptocurrency. The notice will concern sales practices and disclosure requirements. Mr. Cook emphasized that FINRA was “not looking to change the regulatory structure,” but rather assess whether existing disclosure rules need enhanced requirements in light of firms transacting cryptocurrency.

FINRA also expects to issue notices concerning options accounts and complex products more generally. Mr. Cook stated that FINRA believes there should be additional rules, given the evolving way retail investors enter and maintain these accounts.

FINRA will also propose amendments to its regulations concerning high-risk firms. Mr. Cook specifically mentioned issuing a notice to require broker-dealers who are restricted by Rule 4111 to disclose their status on BrokerCheck.

Pandemic Producing Lasting Changes

Mr. Cook explained that he expects that changes made during the pandemic will become permanent. First, FINRA will continue to conduct remote examinations of firms. While Mr. Cook expects there to be a return to on-site examinations, he believes the pandemic proves examinations don’t “always need to be in person.” Second, expect Zoom arbitrations to continue. To this end, FINRA has appointed a Zoom Arbitration Force to recommend and develop future processes. Third, FINRA will continue conducting its internal operations in a hybrid manner.

How to Expunge: that Remains the Question

FINRA will revisit making changes on “reimagining” the expungement process. While Mr. Cook acknowledged FINRA’s decision to withdraw its rule concerning specialized arbitration panels, this topic is still on FINRA’s mind. Mr. Cook stated that FINRA will “issue paper” on alternatives to the current arbitration process.

Diversity, Equity & Inclusion

DE&I will continue to be a “top priority” for FINRA. Mr. Cook stated that FINRA has already sought information from member firms on how to “make the pathway in the industry and stay in the industry more flexible.” Some ideas Mr. Cook mentioned were FINRA’s existing efforts to (1) amend continuing education and registration requirements to allow individuals who terminate their registration to return to the industry; and (2) teaming with SIFMA to make SIE exams free of charge.

The bottom line is that firms should continue to closely monitor FINRA developments. This blog will, of course, continue to monitor significant developments.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

About the Author: Sandra D. Grannum

Sandra Dawn Grannum concentrates her practice on securities, broker/dealer arbitration, litigation, mediation and regulatory defense. She is co-chair of the Commercial Litigation Team.

Sandy has tried complex multimillion-dollar arbitrations before FINRA, AAA and JAMS across the country. She has represented brokerage firms, banks, clearing firms, and associated persons in over 60 arbitrations before the NASD and FINRA which have been tried through award. In addition, she has successfully pursued cases in state and federal courts and in adversarial proceedings before bankruptcy courts.

About the Author: Jamie L. Helman

Jamie L. Helman concentrates her practice on securities, broker-dealer arbitration, litigation, mediation, employment matters, and regulatory defense. She has experience first-chairing FINRA arbitrations, defended on-the-record testimony of broker-dealer employees before FINRA, and is presently involved in the representation of broker-dealers in several pending FINRA cases as well as regulatory matters.

About the Author: Edward J. Scarillo

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