FINRA Issues its Examination and Risk Monitoring Program Report 2023

FINRA published its 2023 report on its Examination and Risk Monitoring Program, covering all the major aspects of trading, pricing, shares and regulation.

FINRA (Financial Industry Regulatory Authority) published its 2023 risk examination and monitoring report on 10th January 2023. The report covers the four new topic areas for the mentioned year.

1. Manipulative Trading
2. Fixed Income – Fair Pricing
3. Fractional Shares, Reporting and Order Handling
4. Regulation SHO

The report also added a new financial crime section, consisting of three topics, i) AML (Anti-Money Laundering), fraud and sanctions, ii) Cybersecurity and technological governance, and iii) manipulative trading.

While the report covers over 20 regulatory areas, it continues the trend from last year’s report on emphasising market integrity The new four referenced topics focus on market integrity, and organisations should expect strict scrutiny in these areas. 

Firms also need to ensure the best execution and compliance and should expect continued attention to the order routing disclosure requirements Rule 606 of regulation NMS. Finra will keep on focusing:

The quality of “regular and rigorous reviews” affects the broker and dealer routing decisions. The potential conflicts of interest that cover internalised order executions.

FINRA will pay particular attention to cybersecurity issues, as the addition of an entirely new section in the report indicates. It is no surprise that FINRA’s concern on cybersecurity issues is mandatory in light of increasing cyber attacks on firms. The FIs can expect the authority to examine all the risk management controls and other security, authentication, and surveillance mechanisms closely in order to prevent these cyberattacks. 

Also, CAT reporting compliance will remain a focal point in 2023, and firms should be prepared for the upcoming CAIS (Customer and Account Information System) reporting deadlines. Firms should be prepared for Reg BI compliance examination to keep clear as the report mentions that FINRA expects the organisations to regularly update their approach to Reg BI and Form CRS compliance. 

The report aims to provide necessary guidelines to the broker-dealers to prepare for examination and review and also to assess compliance and supervisory procedures related to the business practices, compliance and operations. It is an important preview of the areas that may garner the interest of FINRA enforcement. 

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