FINRA Chief Says New Exam Sweeps on the Way

Robert Cook, president and CEO of the Financial Industry Regulatory Authority, warned broker-dealers Thursday to brace for targeted sweeps involving options account opening and special-purpose acquisition companies, as well as “Finfluencers.”

FINRA, Cook said during the Securities Industry and Financial Markets Association’s Compliance and Legal virtual summit, “is in the early stages of preparing some targeted sweeps” in these areas.

“We’ve been interested in options account opening compliance; that will be one sweep that we intend to do — [focusing on] the due diligence that’s being conducted in that space,” Cook said.

FINRA also continues “to be interested in the SPAC space and the conflicts of interest that might be there. I expect we’ll do a sweep in that space as well,” Cook relayed.

Also under consideration: a sweep in the area of “finfluencers,’ more specifically how firms supervise activities and communications related to paid social media influencers,” he said.

Ira Hammerman, SIFMA’s general counsel, who interviewed Cook, noted one trend that the industry has been experiencing “is this prolonged zero interest rate environment combined with some firms moving to zero commissions.” Also, he said, “there are every day new fintech companies entering the securities industry.”

Cook noted that FINRA’s sweep launched in 2020 of the big wirehouse firms moving to zero commissions is ongoing. That sweep, he explained, “focused on whether the zero-commission model affects firm satisfaction of their best execution obligations.”

The broker-dealer self-regulator is also assessing other implications for “investors’ experience” associated with zero commissions and how that may impact other FINRA rules.

“As new products and fee arrangements evolve, we look at compliance with our rules on communications with the public, which require that there be clear, not misleading communications about any product or service offered,” Cook said.

Remote Branch Inspections

As to remote branch office inspections, Cook relayed that FINRA is now in talks with the Securities and Exchange Commission to allow firms to continue with remote inspections in 2022. Late last year, FINRA adopted temporary supplementary material under Rule 3110 to help firms meet their inspection obligations for calendar year 2020 and 2021.

This rule will expire on Dec. 31. FINRA is ”actively engaged in discussions with SEC staff to explore extending the duration of this relief into 2022,” Cook said. 

In December 2020, FINRA published Regulatory Notice 20-42, which launched a review of lessons learned during the pandemic, soliciting comment on a range of topics, including remote inspections.

In response to that notice, FINRA said, “some commenters expressed their general support for a permanent rule to allow firms to conduct their inspections remotely.”

European Compliance Association

European Compliance Association

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