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Independent Broker Dealer Consortium

BCS Alert: FINRA’s Susan Schroeder Previews 2019 Enforcement Priorities

At the November 2018 SIFMA C&L New York Regional Seminar, Susan Schroeder, FINRA’s Executive Vice President and Head of Enforcement, discussed some of FINRA’s enforcement priorities heading into 2019. You can expect these to be included when the official list comes out in January. (See here for FINRA’s 2018 enforcement priorities.)


In 2019, FINRA will continue its focus on several products and activities we have alerted readers to, including the trading of Unit Investment Trusts (UITs), specifically early UIT exchanges; sales of mutual fund share classes and placing clients in inappropriate classes; and sales of variable annuities and life insurance products. The latter is the subject of an extensive SEC rule proposal which would leverage technology and create a “layered disclosure approach” to variable annuities and life insurance contracts.


FINRA will continue to enforce rules intended to reduce the incidence of inappropriate and unsuitable sales of products.


Ms. Schroeder warned attendees that FINRA will continue reviewing for excessive trading/churning (quantitative suitability). Back in September, Bates Research discussed how FINRA continues to deploy RegTech tools as it seeks to curb excessive trading/churning.


Ms. Schroeder pointed to FINRA’s focus on cryptocurrency-related investment products. In July, Bates Research reported that FINRA issued a Regulatory Notice encouraging each Member Firm “to promptly notify FINRA if it, or its associated persons or affiliates, currently engages, or intends to engage, in any activities related to digital assets, such as cryptocurrencies and other virtual coins and tokens.” Ms. Schroeder shared with attendees that, in September, FINRA charged a broker with securities fraud and the unlawful distribution of an unregistered cryptocurrency security. It was the first time FINRA had filed such a charge in connection with cryptocurrencies. Firms should expect that FINRA will continue to monitor for this kind of activity.


Ms. Schroeder noted that FINRA will also continue to focus on Margin Lending abuse. Earlier this year, FINRA announced it would review margin loans and securities-backed lines of credit for whether “firms maintain controls reasonably designed to prevent excessive margin lending,” whether the loans are suitable and whether customers are provided with adequate risk disclosures.


Ms. Schroeder told the audience to expect “some AML cases” in 2019. See here for a recent conversation on AML compliance issues with Bates Group’s Director of Financial Crimes, Edward Longridge.

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