FINRA has published its Annual Regulatory Oversight Report, providing member firms with insights and observations to help strengthen their compliance programmes. New topics covered in the report include crypto assets and advertised volume.
For each of the 26 topics covered, the report identifies the relevant rules; highlights key considerations for member firms’ compliance programs; summarises noteworthy findings or observations from recent oversight activities; outlines effective practices that FINRA observed through its oversight activities; and provides additional resources that may be helpful to member firms in reviewing their supervisory procedures and controls and fulfilling their compliance obligations.
Claire O’Sullivan, vice president, regulatory advisor and stakeholder engagement, FINRA, said, “The Regulatory Oversight Report is really meant to be more of a mirror, reflecting what the regulatory operations staff have seen over the past 12 to 18 months, which we can then package up for firms to help them address a broader set of topics within their own compliance program.”
The report offers some considerations for firms that want to account for crypto asset-related risks, as well as guidance for firms contemplating engaging in crypto asset-related activities.
Regarding advertised volume, the report asks whether firms’ supervisory procedures provide for a method to verify and assess the accuracy of the firm’s published trading volume, including when such trading volume is disseminated through one or more third party service providers.
Other new topics covered are OTC quotations in fixed income securities, which relates to Exchange Act Rule 15c2-11 governing the publication or submission of quotations by broker-dealers in a quotation medium other than a national securities exchange.
The report highlights the need for firms to maintain controls and procedures reasonably designed to monitor quoting activity in fixed income securities.
On cybersecurity, FINRA has seen an increase in the “variety, frequency and sophistication” of some cybersecurity incidents, including the establishment of imposter websites, insider threats, ransomware and cybersecurity events at critical vendors.
Greg Ruppert, executive vice president, member supervision, FINRA, said, “The report’s findings from across FINRA’s Member Supervision, Market Regulation and Enforcement programs can serve as a valuable resource for member firms.”
“As our industry evolves, so do the compliance challenges faced by firms, which is why the report is so critical. Some of the topics covered will be familiar from past reports, updated for 2024, while others are new and represent emerging risks and evolving trends that are of growing importance as we look ahead.”
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