2023 Report on FINRA’s Examination and Risk Monitoring Program
The The Anti-Money Laundering, Fraud and Sanctions, Communications with the Public and Cybersecurity and Technological Governance sections of the 2023 Report on FINRA’s Examination and Risk Monitoring Program (the Report) informs member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources.
FINRA’s Office of Financial Innovation (OFI) is the central point of coordination for issues related to significant financial innovations by FINRA member firms, particularly new uses of financial technology (FinTech). To achieve this, OFI initiates outreach with various stakeholders, trains FINRA staff, publishes and disseminates timely research and publications, maintains internal coordination across FINRA departments, and collaborates with other regulators on matters related to FinTech.
Haimera Workie, who serves as Head of the Office, leads OFI in its efforts to understand and address issues related to fintech, to identify and analyze emerging trends in the securities industry, and to facilitate awareness of and responses to these issues.
As the number and scale of FinTech innovations in the securities industry continues to grow, the business models and operations of firms within financial industry continue to change. For example, a number of FinTech firms are pioneering innovative products and developing financial service solutions utilizing technologies such as machine learning, cloud computing, and blockchain technology. In addition, many traditional financial service providers are rethinking their existing models by incorporating new technologies to alter how they interact with clients, conduct trades, and monitor for regulatory compliance.
As a result, FinTech is transforming various broker-dealer business lines including investment banking, wealth management, trading, and research. All of these FinTech-related changes contribute to an evolving landscape for broker-dealers’ operations.
Going forward, FINRA will continue to engage in an active dialogue with various industry participants including broker-dealers, regulators, investors, and other stakeholders to assess the impact of various emerging FinTech-related business models on both broker-dealers and investors. Through these efforts, we endeavor to obtain knowledge and insight to enhance our ability to facilitate innovation in a manner that supports investor protection and market integrity.
Contact OFI and OGC
FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see Interpreting the Rules for more information.
OFI contact: Please contact FINRA’s Office of Financial Innovation with any questions or comments.
This webpage is for informational purposes only. It is not intended to express any legal position, and does not create any new legal requirements or suggest any change in any existing regulatory obligations, nor does it provide relief from any regulatory obligations. FINRA encourages firms to conduct a comprehensive review of all applicable securities laws, rules, and regulations, as necessary, when considering adoption of new technologies.
The following are some key Fintech areas monitored by FINRA’s Office of Financial Innovation ("OFI") that are impacting the securities industry:
The term "digital asset" generally refers to cryptocurrencies and other virtual coins and tokens (including virtual coins and tokens offered in an initial coin offering ("ICO") or pre-ICO) and any other asset that consists of, or is represented by, records in a blockchain or distributed ledger —including securities and non-security products.
The market for digital assets has grown significantly and has increasingly been of interest to retail investors. At the same time, investor protection concerns exist, including incidences of fraud and other securities law violations involving digital assets and the platforms on which they trade. FINRA has been closely monitoring these issues as broker-dealers, regulators, and investors become more active in this space.
Two emerging areas that OFI has been monitoring include decentralized finance ("DeFi") and non-fungible tokens ("NFTs"). DeFi generally refers to the ecosystem of financial applications being built on blockchain networks. These applications may run ‘smart contracts’ to perform financial services via open-source computer code without a central authority. An NFT is a type of digital asset that has unique identification codes and metadata such that it cannot be exchanged for an equivalent asset. There has been significant growth in the number of NFTs created and transactions involving NFTs, as well as some attempts to create fractional interests in NFTs and pooled assets holding different NTFs. A number of these developments in the DeFi and NFT markets hold potential implications for the securities industry, and OFI is monitoring them.
FINRA continues to provide guidance on digital assets through various methods, including its joint statement on Broker-Dealer Custody of Digital Asset Securities and white paper on Distributed Ledger Technology, as well as seek information regarding broker-dealer activity in this space through Regulatory Notice 21-25. In addition FINRA keeps investors informed through investor alerts and related information.
RegTech (Regulatory Technology)
Regulation is a fundamental pillar of financial services, ensuring investor protection, and market integrity. Increasingly, these firms are turning to innovative regulatory technology ("RegTech"), whose application include compliance monitoring, fraud prevention, data management (access, storage, and reporting), and identification and interpretation of regulation.
RegTech tools offer the potential to help firms meet compliance obligations in a faster and more cost-effective way, but may also pose several unique challenges. FINRA published a white paper on RegTech to provide firms with a roadmap of key regulatory and implementation considerations as they explore RegTech tools, followed by a RegTech Conference and podcast to facilitate dialogue among regulators, thought leaders, and practitioners on the topic. In addition, FINRA hosted a RegTech Conference and published a RegTech podcast to facilitate a dialogue amongst regulators, thought leaders, and practitioners on the topic.
In addition, FINRA has issued a Special Notice discussing its machine-readable rulebook initiative designed to enhance firms’ compliance efforts, reduce costs and aid in risk management. As part of this initiative, FINRA has created a prototype of a rulebook search tool—the FINRA Rulebook Search Tool™ (FIRST™).
Artificial Intelligence ("AI") generally refers to the "intelligence of machines," or the science of computers performing tasks that have been traditionally performed by humans based on human intelligence. AI is generally used as umbrella term to encompass various types of specific technologies such as machine learning, deep learning, and natural language processing. AI, in its various forms, is rapidly being incorporated into the financial services industry, ranging from automated customer service applications and social media sentiment-based trading to sophisticated fraud and financial crime surveillance.
FINRA is seeking to better understand the various AI applications being explored by the securities industry, the benefits offered by such applications, as well as related challenges such as supervision of AI-based tools. FINRA published Special Notice 7-30-18, seeking comments from the industry on the topic. FINRA also published a white paper on Artificial Intelligence in the Securities Industry and hosted an accompanying AI Conference in November 2020.
Quantum computing refers to various technologies based on principles of quantum mechanics, such that typical “bits” in code can hold two or more states at the same time. The result is more powerful computing capabilities compared to traditional computing, as well as the potential to address certain intractable problems in optimization- and pattern detection-style problems that exist within the financial industry. In light of the potentially transformative impact that quantum computing may someday have on the securities industry, OFI is seeking to better understand the opportunities and risks presented by quantum computing, including potential applications for quantum computing being explored in the securities industry and attempts to addresses the potential threats to cybersecurity posed by developments related to quantum computing.
Digital Investment Advice
Digital investment advice generally refers to digital tools that help automate the process to develop an investor profile, to prepare proposals and sales materials, to develop an asset allocation, and to recommend specific securities to an investor. Those recommendations may be for individual securities, a customized portfolio, or a pre-packaged portfolio for investors with a given profile. These investment advice tools can be used by financial professionals or by clients, with many client-facing tools often referred to as "robo advisors" or "robos."
Social Media Sentiment Investing
Over the past few years, a new ecosystem of social media sentiment investing companies have emerged that aim to help investors predict market changes using social media sentiment analytics and facilitate communications through social networking platforms.
Different business models have emerged in this space, including social media data analytics companies, social media sentiment-based product issuers, crowdsourced research networks, and social networking platforms. While these tools may offer some benefits to investors and other market participants, they also pose several risks. For more information, please see FINRA’s investor alerts on social sentiment investing tools, investing and social media, and tips and resources to consider when using social media platforms for investing information.
Cybersecurity generally refers to the information-security controls at securities firms. FINRA expects that broker-dealers, regardless of size, develop their cybersecurity programs. This includes but is not limited to cybersecurity controls in branch offices; methods of limiting phishing attacks; identifying and mitigating insider threats; penetration-testing programs; and establishing and maintaining controls on mobile devices.
To support efforts to protect data and the systems on which it is stored, FINRA has issued a number of information notices to raise awareness on imposter websites, fraudulent phishing emails, and distributed denial of service attacks. FINRA investor alerts also serve as additional resources, covering tips for investors to protect their financial data, as well as the questions they should raise with their brokerage to better manage their data. FINRA also published an Information Notice on authentication methods that firms may consider to protect investors’ and firms’ confidential information.
Gamification generally refers to the application of "game-like" elements and principles to non-game situations. As investors increasingly conduct financial transactions using laptops, tablets, and mobile phones, the design and function of online websites and mobile applications ("platforms") have become intrinsic to broker-dealers’ interactions with customers. Examples of gamification features used by some platforms include but are not limited to games at sign-up; social networking tools; streaks with prizes; points, badges, and leaderboards; and notifications. These features and similar ones may influence investors’ actions as they navigate through platforms and engage in various activities, including opening accounts, selecting investments, and trading. As a result, FINRA is monitoring the use of gamification and related design features in the securities industry and gathering information related to the potential benefits and risks related to these features.
Cloud computing refers to the delivery of information technology ("IT") services using internet technologies in a way that is elastic, scalable, and may be priced on a pay-as-you-go basis. Core services include data storage, processing capacity, networking, and software applications.
Cloud computing is transforming how broker-dealers operate by providing opportunities to enhance agility, efficiency, resiliency, and security within firms’ technology and business operations while potentially reducing costs. At the same time, firms are seeking to address certain key considerations in moving to the cloud. These include items such as developing the right protocols and skills base to maintain cloud security and fostering the right firm culture to fully take advantage of the offerings of cloud.
Considering both the opportunities and challenges presented by cloud, OFI is actively engaged on this topic to better understand the implications of cloud computing on the securities industry. FINRA also published a white paper on Cloud Computing in the Securities Industry in August 2021 and hosted an accompanying Cloud Conference in March 2022.
Related Publications & Resources
OFI White Papers
- Cloud Computing (2021)
- Artificial Intelligence (2020)
- Regulation Technology (RegTech) (2018)
- Distributed Ledger Technology (2017)
- Digital Investment Advice (2016)
FINRA Information, Regulatory, and Special Notices to Industry
- Special Notice 10-21-22 (2022) – FINRA Requests Comment on Its Machine-Readable Rulebook Initiative
- Regulatory Notice 21-25 (2020) - FINRA Continues to Encourage Firms to Notify FINRA if They Engage in Activities Related to Digital Assets
- Information Notice 10-15-20 (2020) - Cybersecurity Background: Authentication Methods
- Regulatory Notice 20-23 (2020) - FINRA Encourages Firms to Notify FINRA if They Engage in Activities Related to Digital Assets
- Special Notice 7-30-18 (2018) - FINRA Requests Comment on Financial Technology Innovation in the Broker-Dealer Industry
- Following the Crowd: Investing and Social Media (Jan. 29, 2021)
- The Ins and Outs of Initial Coin Offerings (Sept. 22, 2020)
- Social Sentiment Investing Tools—Think Twice Before Trading Based on Social Media (Apr. 3, 2019)
- Here's How to Avoid Crypto Stock Scams (Sept. 6, 2018)
- Initial Coin Offerings (ICOs)—What to Know Now and Time-Tested Tips for Investors (Aug. 16, 2018)
- Getting a Handle on Virtual Currencies (May 31, 2018)
- Know Before You Share: Be Mindful of Data Aggregation Risks (Mar. 29, 2018)
- Don’t Fall for Cryptocurrency-Related Stock Scams (Dec. 21, 2017)
- Bitcoin Basics—9 Things You Should Know About the Digital Currency (May 24, 2017)
Podcast, Videos, and Blogs
- FINRA Unscripted | A New Tool for Compliance: FINRA’s Machine-Readable Rulebook Initiative (February 7, 2023)
- FINRA Unscripted | The Journey to the Cloud: Implications for the Securities Industry (March 24, 2021)
- FINRA Unscripted | AI Virtual Conference: Industry Views on the State of Artificial Intelligence (Nov. 24, 2020)
- Conference Panel | Developments in the Digital Assets Market (July 1, 2020)
- Media Release | Artificial Intelligence: A New, Old Trend Transforming Financial Services (June 10, 2020)
- FINRA Unscripted | The Buildathon: Creating New Technology in Service of Investors (Nov. 12, 2019)
- FINRA Unscripted | The Future of RegTech: The Challenges and Opportunities (Feb. 5, 2019)
- Media Release | FINRA Launched the Innovation Outreach Initiative (Aug. 1, 2018)
October 21, 2022
FINRA Requests Comment on Its Machine-Readable Rulebook Initiative
Comment Period Expires: February 21, 2023
August 16, 2021
Cloud Computing in the Securities Industry
July 8, 2021
FINRA Continues to Encourage Firms to Notify FINRA if They Engage in Activities Related to Digital Assets
January 29, 2021
Following the Crowd: Investing and Social Media
July 09, 2020
FINRA Encourages Firms to Notify FINRA if They Engage in Activities Related to Digital Assets
June 10, 2020
Artificial Intelligence (AI) in the Securities Industry
December 2, 2019
Voices from the Buildathon
July 8, 2019
Joint Statement on Broker-Dealer Custody of Digital Asset Securities
April 24, 2019
FINRA Forms Office of Financial Innovation, Announces Haimera Workie as Head
September 10, 2018
FINRA Releases Report on the Rise of RegTech
July 30, 2018
FINRA Requests Comment on Financial Technology Innovation in the Broker-Dealer Industry
Comment Period Expires: October 12, 2018
July 30, 2018
FINRA Requests Comment on Fintech Innovation in the Broker-Dealer Industry
March 29, 2018
Know Before You Share: Be Mindful of Data Aggregation Risks
December 21, 2017
Don’t Fall for Cryptocurrency-Related Stock Scams
August 31, 2017
Initial Coin Offerings: Know Before You Invest
June 13, 2017
FINRA Launches Innovation Outreach Initiative
May 17, 2017
Crowdfunding and the JOBS Act: What Investors Should Know
Report on Digital Investment Advice
May 8, 2015
Automated Investment Tools
May 7, 2014
Bitcoin: More than a Bit Risky
FINRA Hosts Cloud Computing Conference
Cloud computing is transforming how broker-dealers operate by providing opportunities to enhance agility, efficiency, resiliency and security within firms’ technology and business operations while potentially reducing costs. As a result, cloud computing is increasingly seen by many firms as an important architectural component to their infrastructure. This one-day conference brings together regulators, thought leaders and industry practitioners to discuss the use of Cloud Computing, and related opportunities and challenges.
FINRA Hosts First Ever Virtual Artificial Intelligence (AI) Conference
On November 9-10, 2020, FINRA hosted a virtual conference designed to bring together regulators and leaders within the financial industry to discuss the use of AI and its related opportunities and challenges. The conference kicked off with opening remarks from CEO and President Robert Cook, followed by analysis from panelists on industry views of AI use cases, applications of AI in market surveillance, and insights around the regulatory considerations related to this technology. The conference also featured Fintech Office Hours hosted by FINRA’s Office of Financial Innovation (OFI), which offered broker-dealers, vendors, and other market participants the venue to engage with FINRA regarding new Fintech innovations they are exploring.
FINRA Hosts First Ever Buildathon at MIT
On November 8, 2019, FINRA, Deloitte and the MIT Fintech Club kicked off an innovative event aimed at leveraging fintech in service of making investors smarter and safer. The Buildathon paired industry technologists and compliance leaders with high performing technology students from MIT, Harvard, and other Boston institutions for a hackathon-style competition. Teams competed in one of four challenge areas: investor literacy, investor onboarding, investor risk assessment and protecting senior investors. The event broke barriers by – for the first time in the United States – bringing the public, private and academic sectors together to find technology solutions for common problems facing every day investors.
FINRA Hosts First RegTech Conference – January 16, 2019
On January 16, 2019, FINRA convened its first ever RegTech Conference in New York City. Regulators, academics and innovators came together to discuss how technology is creating a new landscape for compliance efforts in financial services. New opportunities are quickly becoming available for industry participants and new challenges are arising for regulators. Issues like machine learning, artificial intelligence and anti-money laundering all played key roles in discussion throughout the day.
New York Roundtable – April 12, 2018
On April 12, 2018, FINRA hosted a FinTech roundtable in New York focused on RegTech, Personal Financial Management and Data Aggregation.
Dallas Roundtable – November 30, 2017
On November 30, 2017, FINRA hosted a roundtable in Dallas on Big Data Analytics, RegTech, and Initial Coin Offerings (ICOs).
San Francisco Roundtable – September 29, 2017
The purpose of the roundtable was to facilitate a dialogue with industry members and other stakeholders that will help FINRA better understand FinTech innovations and their impact on the industry. During the roundtable, there were participant-led discussions focused on 1) artificial intelligence and its impact on financial services; 2) the impact of FinTech on the securities industry; and 3) regulatory technology (RegTech).
Blockchain Symposium – July 13, 2017
FINRA’s Blockchain Symposium was designed to bring together regulators and industry leaders to discuss the use of blockchain and related opportunities and challenges. The half-day symposium looked at the changes that are occurring or may occur in the future as a result of the implementation of DLT applications in the financial industry. It also featured discussions of the potential market and regulatory implications of these changes.
View the Blockchain Symposium Brochure.
The FinTech Industry Committee is composed of 15 members, drawn from member firms, academia, and industry participants, in addition to observers from the Securities and Exchange Commission (SEC) and North American Securities Administrators Association (NASAA).
The committee provides FINRA, member firms and others with a platform for ongoing dialogue and analysis of FinTech developments, including with respect to their potential impact on FINRA’s investor protection and market integrity objectives; challenges to the adoption of FinTech-based products or services; opportunities to improve interactions between FinTech firms and FINRA to support innovation that is consistent with FINRA’s investor protection and market integrity objectives; and possible FINRA FinTech initiatives.
Charles Schwab & Co
Jo Ann S. Barefoot
Barefoot Innovation Group, LLC
NYU Stern School of Business
Partnership Fund for New York City
Teachers Insurance and Annuity Association of America (TIAA)
Atomic Brokerage, LLC
MIT Media Lab
Wharton School of Business, University of Pennsylvania
North American Securities Administrators Association (NASAA) FinTech Committee
Valerie A. Szczepanik
U.S. Securities and Exchange Commission (SEC)
FINRA Staff Liaisons: