FINRA’s Regulatory and On-Site Exam Priorities for 2015
Gear up and prepare yourselves –FINRA says they’re concerned with:
1) Senior Investors. Due to the aging of “Baby Boomers,” the population of senior investors is large and growing. FINRA is concerned that this group lacks the ability to replenish investment accounts due to their increasingly non-working status and has less time to recoup investment losses due to their advanced age;
2) IRA Rollovers and other “Wealth Events.” Wealth events, like IRA Rollovers, occur when clients gain large, lump sums, like the sale of a business, divorce settlement or an inheritance. Rollover IRAs were on last year’s list as well. FINRA seems to be cognizant of certain studies that show the prevalence of roll-overs from old 401(k) plans and studies that show that broker-dealers and registered representatives may not fully explain all options to investors. Moreover, claims of “free IRAs” may be problematic if investors pay costs associated with such accounts;
3) High Risk and Recidivist Brokers. This priority is a carryover from last year. To combat the harm caused by these “bad apples,” FINRA is expanding its use of data mining and analysis, special targeted exams, and expedited investigation and enforcement proceedings;
4) Private REITs. Unlike their publically traded brethren, these REITs are not exchange listed. These investments are illiquid and even limited redemption options can be overwhelmed if too many investors rush for the exits. These REITs are hard to value and their distributions are not always made up of rents from holdings, but could include those financed by debt or return of the investor’s principal. “Red flags” from the issuers should be continually evaluated by registered representatives and broker-dealers, according to FINRA;
5) Private Placements. This priority is again carries over from last year. FINRA rules require filings with FINRA regarding broker-dealers participating in such offerings. FINRA will also be looking at suitability of such recommendations and the amount of due diligence done by the firm in the underlying issuers and their management. Since September 2013, the JOBS Act and the revised Regulation D allow for general solicitation and advertising of private placements under certain circumstances; and
6) Complex Structured Products. This was on last year’s list as well. Among FINRA’s concerns are the unsecured nature of the products, illiquidity, embedded derivative features in some products and difficulty in properly valuing such products. Retail communications regarding publically traded derivatives must be pre-filled with FINRA.
May Law, PC is a securities boutique firm that has a an extensive knowledge of FINRA related rules and assists registered broker-dealers (BDs) and associated persons (APs) in responding to FINRA and SEC investigations, disciplinary matters, arbitrations and “on the record” interviews (OTRs). The firm’s website is located at www.maylawpc.net, its blog is located at the same site and the main number is 312-380-5500. Andrew May has been practicing law for 20 years and can be contacted at firstname.lastname@example.org.
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