Earlier this month, FINRA released its 2015 Regulatory and Examinations Priorities Letter. In the letter, FINRA lays out its 2015 priorities, which focus on three general areas: 1) Sales Practice; 2) Financial and Operational Priorities; and 3) Market Integrity. This blog entry will discuss FINRA’s “Sales Practice” priority.
FINRA is focused on various sales products for the upcoming year. FINRA promises to regularly review product-related risks and examine firms’ and registered representatives’ due diligence, suitability, disclosure, supervision, and training related to those products. The specific products mentioned by FINRA include:
- Interest Rate-Sensitive Fixed Income Securities – FINRA examiners plan to test for suitability and adequate disclosures, as well as review firms’ efforts to educate registered representatives and customers about these products.
- Variable Annuities – In addition to focusing on the sale and marketing of these products, particularly with regard to “L share” annuities, FINRA will focus on compliance training and procedures related to variable annuities.
- Alternative Mutual Funds – One of FINRA’s primary areas of focus regarding these products is ensuring accuracy in product descriptions, especially in the funds’ prospectus.
- Non-Traded Real Estate Investment Trusts (REITs) – FINRA emphasized the changes of Regulatory Notice 15-02, which is not effective until next year, but will require more accurate per share estimated value on customer account statements, as well as various important disclosures regarding REITs.
- Exchange-Traded Products (ETPs) Tracking Alternatively Weighted Indices – FINRA plans to monitor the indices and products tracking them will behave in different market environments.
- Structured Retail Products (SRPs) – FINRA will focus on policies and procedures regarding sales incentives for these products, as well as conflicts of interest that may arise where the distributor and wholesaler are affiliated.
- Floating-Rate Bank Loan Funds – FINRA warns of potential liquidity challenges for investors in these loans.
- Securities-Backed Lines of Credit (SBLOCs) – FINRA wants companies to have proper monitoring and controls in place with regard to these products, ensuring that customers are kept informed of the products’ features.
If your firm deals in any of these sales products, you can bet that FINRA will have its eye on your firm this upcoming year. Companies and in-house counsel should be prepared for increased FINRA oversight and scrutiny in these areas. Thus, it is critical to get ahead of any possible FINRA examinations or investigations by ensuring that you are fully complying with FINRA’s recommendations regarding these products.