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2019 Report on Examination Findings and Observations

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Introduction

In both 2017 and 2018, FINRA issued Reports on Examination Findings in response to firms’ requests that we make publicly available a summary of key findings from FINRA’s examinations of member firms. Firms use this information, as well as effective practices observed by FINRA at certain firms, to anticipate potential areas of concern and improve their procedures and controls. (We subsequently refer to the two prior years’ documents as the “2017 Report” and the “2018 Report.”)

The name of this year’s report—the “2019 Report on Examination Findings and Observations”—reflects FINRA’s recent decision to distinguish more clearly between examination findings and observations. Findings constitute a determination that a firm or registered person has violated U.S. Securities and Exchange Commission (SEC), FINRA or other relevant rules. By contrast, observations (formerly known as recommendations) are suggestions to a firm about how it could improve its control environment in order to address perceived weaknesses that elevate risk, but do not rise to the level of a rule violation or cannot be tied to an existing rule, and are communicated to firms separately from the formal examination report. This report reflects key findings and observations identified in recent examinations, and contains effective practices, where noted, that could help firms improve their compliance and risk management programs. Where a matter is rule-based, the applicable regulatory sources (“Regulatory Obligations”) are identified under the topic heading.

As a reminder, this report does not represent a complete inventory of findings, observations or effective practices. In fact, an individual firm may not have any deficiencies identified in this report, or may have other deficiencies that were not included. Similarly, we recognize that firms may employ effective practices that are not described in this report.

Further, this report does not create new legal or regulatory requirements or new interpretations of existing requirements. There should be no inference that FINRA requires firms to implement any specific effective practices described in this report or those that extend beyond the requirements of existing securities rules and regulations.

FINRA always welcomes feedback on how we can improve the content, structure, format or other elements of future reports on examination findings and observations. If you have suggestions, please contact Steven Polansky, Senior Director, Member Supervision, at (202) 728-8331 or by email, or Elena Schlickenmaier, Principal Research Analyst, Member Supervision, at (202) 728-6920 or by email.

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