Investor protection remains atop FINRA’s priorities for 2022.
“There will be a theme around retail-investor protection,” CEO Robert Cook said, during a recent webinar hosted by SIFMA. And FINRA will proceed with some existing initiatives as well as launch new efforts in 2022, he told SIFMA President & CEO Kenneth Bentsen, Jr., in a virtual Q&A session.
FINRA will also revisit rules and regulations in light of changes brought about by the COVID-19 pandemic and the industry’s shift to remote work, Cook noted. In doing so, the regulator could modify or extend some short-term responses to make them long-term changes.
FINRA will follow up on sweep exams that it announced for the following topics in 2021: Special Purpose Acquisition Companies (“SPACs”), Social Media Influencers, Customer Acquisition, and Related Information Protection, and Option Account Opening, Supervision and Related Areas.
Also, in the coming months, FINRA will solicit industry feedback around issues such as complex products in general and cryptocurrency in particular. FINRA would consider the feedback in exploring any possible changes in rules or regulations.
Cook said that FINRA is interested in disclosures made by member firms, for example. “When people buy a product that is not regulated, they may not know that they are shifting out of the broker-dealer regime into a different regime because they are dealing with the same broker-dealer,” he said.
Adapting to evolving workplaces
FINRA is also considering existing rules and regulations as they relate to a new normal in which many firms may either work remotely exclusively or implement hybrid working models whereby team members split time between the office and virtual locations.
“COVID accelerated trends that were underway that pressured our ‘brick-and-mortar’ concept in terms of how work happens,” Cook said. “We want to work with all stakeholders to re-assess the current regulatory framework around the office construct.”
FINRA recently shared lessons learned from the pandemic in Regulatory Notice 21-44. It has also extended remote branch inspections until the end of 2022 to give firms more time to return to their offices and prepare.
“That might seem like a while,” Cook said of the new Dec. 31, 2022 extension for remote inspections. “But it’s really not a lot of time for us to develop an alternative approach involving all the stakeholders. The clock is ticking.”
FINRA is open to offering a remote option for some locations beyond the temporary relief period provided for under FINRA Rule 3110.17.
“We’ll be looking to evolve the program to more of a risk-based approach when thinking of whether to go on-site or not. It may not be in-person 100%,” Cook said. “We should look at what functions are being performed, what risks are associated with those functions, and what supervision and regulation requirements should flow from that.”
FINRA will work with other regulators in addressing the industry’s shift to remote work and its impact on inspections. “This needs to be the year where we collectively develop a new approach to thinking about the issue,” Cook said.
Detailing FINRA’s 2022 priorities
FINRA will formally release its priorities for this year in its soon-to-be-released annual report. This year’s report will resemble the 2021 Report on FINRA’s Examination and Risk Monitoring Program in its approach, Cook said.
That is, it will cover some relevant rules and compliance questions that firms should consider. FINRA will also share exam findings as well as examples of effective compliance practices that it has observed.
The 2022 report will include updates on some of last year’s topics, such as FINRA’s current expectations around firms’ Regulation Best Interest and Form CRS obligations. Additionally, it will cover issues that the 2021 report did not, such as the trusted contact person requirement.
Cook expects FINRA to publish its 2022 report within the next few weeks.
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