FINRA is using podcasts to highlight its 2017 Exam Priorities that were disseminated to member firms earlier this year. In today’s podcast, the third in a 4-part series, FINRA presents the following observations pertaining to key issues:

1.  CYBER SECURITY.    FINRA has noted repeated branch cyber compliance shortcomings pertaining to: 

• branch office cyber compliance controls - (i) password strength and sharing; (ii) data encryption; (iii) portable storage device use; (iv) virus protection.
• correct data storage – (i) failure to store certain records in non-rewritable, non-erasable format.

2.  FIRM’S OWN TESTING OF SUPERVISORY CONTROLS.    FINRA notes that controls most commonly break down when a firm increases the scales or scope of its business, or it changes from a legacy to a new compliance system. Most common

3.  CUSTOMER PROPERTY AND SEGREGATIONS OF CLIENT ASSETS (SEC RULE 15C3-3).    When looking at firms’ documentation and procedures, FINRA has noted: (i) some firms engage in transactions with little or no economic substance just to reduce their reserve or segregation requirements.

4.  SEC REG. SHOW (SHORT SALES).    FINRA finds that: (i) firms don’t always have reasonable grounds to believe that shares are available for borrowing before entering short sales.

5.  AML AND SUSPICIOUS ACTIVITY TRANSACTIONS.    FINRA has noted deficiencies related to: (i) data integrity issues; (ii) suspicious microcap activity; (iii) foreign currency transaction monitoring; and, (iv) accounts controlled by nominee companies.

6.  MUNI ADVISOR REGISTRATION.      FINRA finds that:  (i) some firms are not registering correctly with the SEC and the MSRB; and, (ii) not adequately registering their personnel.