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On March 3rd, the SEC Division of Examinations announced their 2021 examination priorities. Earlier this year, on February 2nd, FINRA released a report of Examinations and Risk Monitoring to provide insight to member firm’s compliance programs.
Unsurprisingly, there is significant overlap between the priorities of the two securities regulatory bodies. Both the SEC and FINRA look to address the news industry risks created by the COVID-19 pandemic. For example, cybersecurity concerns in a remote work environment, Paycheck Protection Program loans for registered representatives, and how municipal advisors may have adjusted their practices.
Additionally, ensuring Regulation Best Interest (“Reg BI”) compliance is a top priority in 2021 for both regulators. FINRA highlights it will investigate: if the firms have policies, procedures and controls in place to assess recommendations using a best interest standard, if firms provide adequate Reg BI training, and if firms have policies, procedures and controls in place regarding the filing, updating, and delivery of Form CRS. The SEC adds, “[t]he Division will focus on compliance…[and] will examine whether firms are appropriately mitigating conflicts of interest…”
Other common priorities between the SEC and FINRA include: variable annuities, compliance with best execution in a zero commission environment, protecting retail senior investors, anti-money laundering, and liquidity. FINRA also prioritizes the vendor display rule, market access, and data breaches. Whereas, the SEC emphasizes FinTech, ESGs, and the London Inter-Bank Offered Rate Transition.
Overall, it appears the SEC is seeking to address the evolving risks in the industry such as concerns related to climate change and digital currencies. On the other hand, FINRA will focus on familiar issues such as communications with the public and cybersecurity risks.
A full list of the 2021 priorities for the SEC Division of Examination and FINRA can be found online at: https://www.sec.gov/files/2021-exam-priorities.pdf and https://www.finra.org/rules-guidance/guidance/reports/2021-finras-examination-and-risk-monitoring-program