FINRA’s 2024 Regulatory Oversight Report: Key Insights for Member Firms

FINRA (Financial Industry Regulatory Authority) has released its 2024 Annual Regulatory Oversight Report, spanning 90 pages and focusing on key areas of concern for member firms, according to an article by Davis, Wright, Tremaine. DWT breaks the report into six primary topics, each containing multiple sub-topics with examples of effective and ineffective practices.

Financial Crimes, covers Cybersecurity and Technology Management, AML (Anti-Money Laundering), Fraud, Sanctions, and Manipulative Trading. Firms are advised to consider the implications of cyber incidents under FINRA Rule 4530(b), establish effective practices for verifying customer identification in online accounts, and surveil for wash sales related to liquidity rebates.

Crypto Asset Development firms are encouraged to ensure clear communication distinguishing affiliated crypto accounts from brokerage accounts.

Firm Operations encompasses Outside Business Activities, Private Securities Transactions, Books and Records, Regulatory Events Reporting, Trusted Contact Persons, and Crowdfunding Offerings. Recommendations include establishing policies for crypto-related activities, surveilling for unapproved communications, reviewing firm communications for unreported complaints, setting goals for collecting trusted contact person information, and evaluating potential warning signs in crowdfunding onboarding.

Communications and Sales focuses on risk disclosure in mobile applications, rigorous review processes for high-risk retail recommendations, clear guidance on variable annuities, and disclosure of risks to customers in private placements.

Market Integrity addresses Consolidated Audit Trail (CAT), best execution with payment for order flow, disclosure of routing information, Regulation SHO exemptions, fixed income fair pricing, OTC quotations, and advertised volume. Firms are urged to maintain regular communication with CAT reporting agents, assess the interaction of payment for order flow with best execution obligations, and consider third-party confirmation of issuer information in fixed-income quotations.

Financial Management covers Net Capital, Liquidity Risk Management, Credit Risk Management, Portfolio Margin, Intraday Trading, and Segregation of Assets. Firms should assess the completeness and accuracy of accounting entries, have a liquidity risk management plan, implement policies for credit risk management, communicate proactively with clients having significant exposures, and monitor and resolve possession or control deficits.

These observations serve as a starting point for member firms to engage in critical self-assessment across these areas.