FINRA Issues Its First Progress Report On FINRA360

Financial Institutions Law Alert

On April 24, 2018, FINRA released its first Progress Report on FINRA360, a comprehensive self-evaluation and organizational improvement initiative to address stakeholder feedback, analyze opportunities for improvement, and make changes to increase the efficiency and effectiveness of FINRA’s programs. The progress report detailed major actions to date and additional areas of focus for FINRA’s operations, regulatory policy, and stakeholder engagement.

Operational Enhancements

  1. Changes to FINRA Enforcement Structure. FINRA combined its two Enforcement programs into a single department under the leadership of a new Executive Vice President of Enforcement, Susan Schroeder.
  2. Enhancements to the Examination Program. FINRA will focus on enhancing its Examination program through several key initiatives. First, there will be continued emphasis on developing a risk-based framework for examinations and a shift away from a “one-size fits all” model, with a particular focus on eliminating duplicative requests and gaps in the exam process. Second, FINRA is expanding examiner training and educational opportunities by building new training programs and providing opportunities for examiners to take licensing tests administered to industry participants. Third, FINRA will continue to enhance its process for sharing information learned through the examination process with other firms via annual reports. Lastly, FINRA will continue to improve its processes for information requests with member firms.
  3. FINRA 2018 Annual Budget Summary and Financial Principles. FINRA published its 2018 Annual Budget Summary and a guide on its budget development process, which provides transparency into its operations.
  4. Data and Analytics. FINRA will continue to develop efficiencies within its advanced data analytics function by increasing communications between the business and technology groups and restructuring the existing data analytics governance framework in favor of a “hub and spoke” structure that more closely involves business stakeholders.
  5. Regulatory Operations Oversight Committee (“ROOC”). FINRA established the ROOC to advise and assist the board by providing oversight on regulatory operations.
  6. Remote Branch Office Inspections. FINRA has proposed to adopt new rules that facilitate remote inspections given the increased use of remote office technology (Regulatory Notice 17-38).
Regulatory Policy Developments

  1. Retrospective Rule Review. FINRA has developed a retrospective rule review program to assess the efficiency and practical application of existing rules. The Progress Report specifically identifies the following as currently subject to review and comment: Outside Business Activities (Regulatory Notice 18-08); Member Application Program Rules (Regulatory Notice 18-16); Carrying Agreements (Regulatory Notice 18-10); Communications with the Public (Regulatory Notices 15-17; 17-18; and 17-06); Payments for Market Making (Regulatory Notice 17-41); and Capital Raising (Regulatory Notice 17-14).
  2. Qualification Exam Restructuring. FINRA is restructuring its qualification exam program in two significant ways: (i) reviewing the current curriculum of 16 representative level exams for content overlap and redundancies; and (ii) developing the Securities Industry Essentials (“SIE”) exam, a fundamental securities and regulatory exam that will be offered starting in October 2018. The SIE will be required for applicants seeking to register as representatives but will also be offered to individuals who are not associated with a member firm (unlike the Series 7 and similar examinations).
  3. Capital Raising. FINRA has taken actions to modernize its regulation of member firms in capital-raising activities by creating the Capital Acquisition Broker rule set for firms engaged in a limited range of corporate-finance activities and the Funding Portal Rules, a streamlined set of rules tailored to the limited scope of funding portal activities. To facilitate this goal, FINRA formed the Capital Acquisition and Placement Broker Committee in December 2017.
Engagement with Key Stakeholders

  1. Examination Findings Report. In December 2017, FINRA published a report on FINRA Examination Findings to provide all member firms with key information developed across all of FINRA’s exam programs.
  2. Investor Education and Tools. FINRA is developing initiatives to augment investor educational content. The initiatives will use social media and interactive learning modules. In particular, FINRA is focused on developing educational initiatives for senior investors.
  3. Changes to FINRA Advisory Committees. FINRA is revising its committees to explore ways to present stakeholders with forums for information on proposed rules, technology, and specific product issues. The names and affiliations of each advisory committee are available on FINRA’s website at https://www.finra.org/about/committees.
  4. Small Firm Initiatives. FINRA has developed a number of resources to assist small firms in navigating their regulatory and compliance requirements. In particular, FINRA launched a Small Firm Helpline, eliminated certain duplicative filing requirements for small firms subject to multi-agency jurisdiction, and significantly reduced FINRA conference registration fees for small firms.
  5. Changes to FINRA Rulemaking Process. FINRA has taken steps to increase transparency, engagement, accessibility, and guidance for its rulemaking by increasing the amount of time for firms to respond to proposed rules and improving accessibility to its archive of rule comments and responses.
  6. Changes to Engagement with Member Firms: Developing Compliance Tools and Resources. Providing efficient, simple solutions for member firms seeking compliance-related information has been a major focus of the FINRA360 initiative. In particular, FINRA has developed numerous compliance resources for firms, including: (i) the “compliance calendar,” which tracks filing requirements and other significant deadlines; (ii) “surveillance report cards” to alert member firms of suspicious trading patterns flagged by FINRA’s sophisticated monitoring systems; and (iii) compliance education initiatives through videos, conferences, tutorials, weekly updates, and specialized events focused on relevant compliance issues.
  7. Innovation Outreach Initiative. As part of FINRA’s ongoing focus on addressing the ever-changing world of FinTech, FINRA established an Innovation Outreach Initiative in June 2017 to provide the means for an ongoing dialogue with the securities industry to better understand emerging FinTech issues.
  8. Industry Continuing Education. FINRA collaborated with the Certified Financial Planner Board to enable CFP professionals to receive continuing education credits for FINRA e-learning courses.
  9. FINRA Governance and Transparency. FINRA will provide greater transparency into its Board of Governors meetings by providing more information on its website and issuing Board meeting press releases.

These developments and ongoing initiatives are worthy undertakings that will serve to increase the efficiency of FINRA’s core activities, keep member firms informed of potential changes, and enhance small-firms’ ability to navigate the regulatory landscape.