Financial Advisor and Broker Dealer Compliance in 2018

Contact: Daniel D. Hill

As the business of investments gets rolling in 2018, securities regulators have begun sharing their compliance concerns and focus for the coming year.

FINRA, as usual, is one of the first to issue its compliance priorities.  In 2018, FINRA states that it will focus more on the following:

  • Sale practices, including the recommendation of complex products to unsophisticated and/or vulnerable investors.  On its face, this “exam priority” appears to be nothing new.  Compliance risks have always included some focus on protecting the unsophisticated and vulnerable, and this 2018 priority is little more than a subset of suitability requirements.  NOTE, HOWEVER, that effective February 5, 2018:
  • FINRA Rule 2165 permits FINRA members to place temporary holds on disbursements of funds or securities from customer accounts where there exists a reasonable belief of financial exploitation; and
  • FINRA Rule 4512 requires FINRA members to make reasonable efforts to obtain the name and contact information for a trusted contact person on all non-institutional accounts.
  • Protection of customer assets and financial data, as well as the accuracy of a firm’s financial data, are also areas of focus in 2018.  In large part, I read this priority as a continued focus on data security.  Cyber risks are only increasing, and the financial services industry continues to be a prime target.

By all appearances, the SEC is also ramping up its technology and data analysis tools.  This will undoubtedly result in more data-driven examinations, which I suspect will result in more market integrity issues, including, for example, best execution policies.  Late in 2017, the SEC also issued a number of alerts addressing such compliance topics as advertising, which will remain a primary focus given the ever-expanding use of social media to communicate with clients.

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