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FINRA Published 2018 Report on FINRA Examination Findings

December 12, 2018
Volume 50

  • Regulatory Notice
  • Financial Reporting Rule

Upcoming Deadlines and Effective Dates
  • SEC Request for Comment on FINRA Rules
  • FINRA Election
  • Registration Renewal

Education and Compliance Programs

FINRA published its 2018 Report on FINRA Examination Findings, its second annual report detailing observations from recent exams of firms. The 2018 Report on FINRA Examination Findings focuses on suitability for retail customers, fixed income mark-up disclosure, reasonable diligence for private placements and abuse of authority, followed by a summary of additional observations. FINRA also included within the report a case study that highlights examination findings from a targeted examination (sweep) of volatility-linked products.

FINRA is reminding all members, regardless of size, that receive or originate orders in equity securities or listed options that they will be required to report to CAT. Further, all proprietary trading activity, including market making activity is subject to CAT reporting. There are no exclusions or exemptions of any kind for type of firm or type of trading activity. FINRA members required to report to CAT cannot assume their clearing firm, or any other entity, will automatically report on their behalf. If an introducing firm elects to have their clearing firm report on their behalf, the firm must have a signed agreement in place and a supervisory system designed to ensure that data reported to CAT on their behalf by their clearing firm is timely, accurate and complete.

On October 30, 2018, the CAT NMS LLC, of which FINRA is a Participant, published the final version of the CAT Reporting Technical Specifications for Industry Members. FINRA strongly recommends that members review this document and other related material to understand their obligations related to CAT. 

The first phase of CAT Industry Member reporting will begin on November 15, 2019. This phase requires all large broker-dealers, and small broker-dealers that are current OATS reporters, to begin reporting equities data to the CAT. Small broker-dealers that are not current OATS Reporters will begin reporting equities data on November 15, 2020. For your reference, small broker-dealers, for the purposes of CAT, are defined as those brokers-dealers with total capitalization of less than $500,000. As such, FINRA recommends to its firms that they start planning and budgeting to begin reporting this data to CAT.   

Beginning in December 2018, firms will receive an email notification from the CAT NMS LLC Plan Processor Thesys CAT. The purpose of this email is to register with the CAT system. Upon receipt of the email, all firms with a CAT reporting obligation, regardless of when that obligation commences, are required to register with the CAT system. Additional information regarding the CAT registration and onboarding processes will be forthcoming.   

If you have any questions regarding these requirements, please contact the CAT Helpdesk at (833) 228-7378

FINRA published a Technical Notice relating to trade reporting fees, for firms that qualify as a “Retail Participant” on the FINRA/Nasdaq Trade Reporting Facility. Some firms may not have had sufficient time to complete and submit the required documentation to demonstrate eligibility as a Retail Participant before becoming liable for the new FINRA/Nasdaq Trade Reporting Facility Participation Fee. Because the Participation Fee does not apply to Retail Participants, qualifying firms will be entitled to a credit of any Participation Fees they may have been charged between September 2018 and the date of approval as a Retail Participant, as set forth in the Technical Notice. Qualifying firms that have submitted their application and attestation by December 31, 2018, will receive a credit on their invoice, even if they are not formally approved by Nasdaq, Inc. as a Retail Participant until after December 31, 2018.

Upcoming Fee Change: Effective January 1, 2019, the FBI fingerprint fee will increase from $10.00 to $11.50. Please visit the Fingerprint Fees page for more information about how this will affect the cost of fingerprint submissions to FINRA.

The FINRA Board of Governors meets this week. The Board’s discussions will include a review of FINRA’s accomplishments and the 2019 budget. The Regulatory Policy Committee will review several current rulemaking proposals, including a proposal to prohibit compensated non-attorney representatives in arbitrations and mediations, and proposed changes to the Code of Arbitration Procedure codifying existing arbitrator expungement guidance.


SEC Approves Amendments to the Codes of Arbitration Procedure to Establish a $200 Honorarium for Contested Subpoenas or Orders

The Securities and Exchange Commission (SEC) approved amendments to FINRA’s customer and industry arbitration rules to pay each arbitrator a $200 honorarium to decide without a hearing session a contested subpoena request or a contested order for production or appearance. The amendments, which are described in Regulatory Notice 18-40, are effective for cases filed on or after January 7, 2019.

SEC Updates Guidance on Broker-Dealer Financial Reporting Rule

Staff of the SEC Division of Trading and Markets has updated guidance concerning the amendments to the broker-dealer reporting rule (SEA Rule 17a-5) that the SEC adopted in July 2013 pursuant to Exchange Act Release No. 70073 (July 30, 2013). The guidance, titled “Frequently Asked Questions Concerning the July 30, 2013 Amendments to the Broker-Dealer Financial Reporting Rule” (Updated November 29, 2018), is available on the SEC website.

 Upcoming Deadlines and Effective Dates

SEC Request for Comment on FINRA Rules

The SEC requests comment on FINRA’s proposal to amend FINRA Rule 4570 (Custodian of Books and Records) to: (1) provide a member that is filing a Form BDW (Uniform Request for Broker-Dealer Withdrawal) the option of designating another FINRA member as the custodian of its books and records on the form; (2) clarify the obligations of the designated custodian; and (3) require the designated custodian to consent to act in such a capacity. The comment period expires December 21, 2018. See the Federal Register notice.

Renewal Program

As a reminder, December 17, 2018, is the payment deadline for Preliminary Statements of registration renewal fees. This annual program simplifies firms' registration renewal process with FINRA and participating regulators by requiring just one payment to FINRA.

See Regulatory Notice 18-37 and visit the 2019 Renewal Program page for details.

FINRA Elections

FINRA is conducting a Special Election to fill a Small Firm Vacancy on the National Adjudicatory Council. Petitions for candidacy are due December 13, 2018. Any eligible individual who obtains the requisite number of valid petitions may be included as a candidate on the ballot by following the petition procedures set forth in FINRA Regulation’s By-Laws and Election Notice 10/29/18.

 Education and Compliance Programs

Register today for the FINRA RegTech Conference—a forum for regulators, thought leaders and industry practitioners to learn more about the use of RegTech tools, and related opportunities and challenges.

The conference takes place January 17 in New York City. Download the conference brochure, which includes the full agenda and session descriptions.

Register early for the Annual Conference, which takes place May 15-17, 2019, in Washington, DC. Reduced rates are available for the first 500 in-person registrants before March 29, 2019. Register today.

Mark your calendar as FINRA’s Small Firm Conference returns October 23 – 24, 2019 in Santa Monica, CA. This conference features in-depth discussion on small firms’ practices and tips for complying with FINRA rules.

Discounted rates available—register early to secure your seat

Register today for the 2019 FINRA Institute at Georgetown Certified Regulatory and Compliance Professional (CRCP)® program— comprised of two weeklong residential courses, which are delivered at Georgetown University's McDonough School of Business in Washington, DC. This program provides an executive educational experience that covers the theory and practical application of securities laws and regulation through intensive instruction, discussion and case studies.

  • Week I • July 21 – 26, 2019
  • Week II • November 17 – 22, 2019

Watch our latest video to learn more about the CRCP® program and get answers to the most frequently asked questions about the program. Visit FINRA's website for additional details and registration information.

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