On January 22, 2019, the Financial Industry Regulatory Authority (“FINRA”) released its 2019 Risk Monitoring and Examination Priorities Letter (Regulatory Notice No. 18-20) in which it identifies topics FINRA will focus on in the coming year. FINRA indicates that this year the securities self-regulatory organization will review “firms’ activities through its membership and examination process related to digital assets and assess compliance with applicable securities laws and regulations.”
The letter goes on to indicate that “in coordination with” the Securities and Exchange Commission, FINRA will “consider how firms determine whether a particular digital asset is a security” and whether the firms have adequate controls and supervision over compliance with rules related to the (i) marketing, (ii) sale, (iii) execution, (iv) control, (v) clearance, (vi) recordkeeping, and (vii) valuation of digital assets. The examination into digital assets also will include a review of whether firms are in compliance with federal anti-money laundering rules and regulations.
Other topics identified as a priority for 2019 include:
- Online Distribution Platforms: Review firms’ compliance with the distribution of securities through online platforms in reliance of Rule 506(c) of Regulation D and Regulation A under the Securities Act of 1933
- Fixed Income Transactions Disclosure: Review firms’ compliance with mark-up/mark-down disclosure obligations on fixed income transactions with customers
- Regulatory Technology: Engage with firms to understand how they are using innovative regulatory technology tools to make their compliance efforts more efficient, effective and risk-based
- Market Risks: Review how firms (i) comply with Best Execution practices, (ii) identify possible market manipulation and (iii) apply appropriate controls and limits to sponsored orders
The full list of priorities is described in detail in the letter here.
