2013 Exam Priorities Overview

January 11, 2013

 

Today, FINRA published its eighth annual Regulatory and Examination Priorities Letter to highlight the key issues that are significant to our regulatory programs. This letter is an important part of our work to support your efforts to regularly update your compliance capability. It is my hope that this letter helps make our examination program and related regulatory concerns as transparent as possible.

 

Beyond the subjects identified in the letter, I wanted to bring to your attention two other areas of focus for us this year. The first is firm controls and managing conflicts of interest. Late last year, we initiated conversations with several firms to better understand how they identify and manage conflicts. Our goal with this effort is to collect—and share—strong practices in this area. You will hear more from us on this topic in 2013.

 

A central subset of conflicts of interest is the topic of compensation practices. As you know, this has been the subject of debate over the last several years. Last week, we issued for comment a new rule proposal related to recruitment compensation practices. FINRA's intention behind issuing this proposal is to ensure that investors are informed of conflicts involving recruitment packages when they make the important decision to move an account. We are very interested in your comments on the costs and benefits of the proposal, and will review them closely.

 

Another area where we would like your input is regarding the consolidated audit trail (CAT), pursuant to SEC rule requirements, that FINRA and the national securities exchanges are working to build. A consolidated audit trail will be a big win from a market integrity standpoint, but it needs to be designed in a way that doesn't impose unnecessary burdens on firms. Understanding the potential impact on firms is one of the reasons the SROs are currently seeking public comment on concepts and proposed requirements for a request for proposal that will inform the design of CAT. I encourage you—through trade associations and other avenues—to participate in the process so that we get it right.

 

Let me close on a brief note regarding the evolution of our risk-based examination program. I hope you're seeing—or will see during your next exam—that examiners arrive on site with a better understanding of your firm and its business. You should also see that our risk-based program means a more tailored approach to each exam. Not every exam will be perfect, but you should know that we are committed to making the process more effective and efficient for firms and for FINRA.

 

As part of our commitment to continuing to build a productive dialogue between FINRA and firms, we want to hear about your challenges and concerns and, in particular, how we can make regulation even more effective. In that regard, I welcome any thoughts or reactions you may have to our priorities in this document or other areas where you believe FINRA should focus. I look forward to continuing the conversation as we work toward a mutual goal of helping investors regain confidence in the markets.

 

Sincerely,
 

Richard Ketchum Signature 

Richard G. Ketchum
Chairman and CEO