FINRA Annual Report Highlights Crypto, Cybersecurity, Reg BI

The Financial Industry Regulatory Authority issued on Tuesday its annual regulatory oversight report intended to provide member brokerage firms and exchange markets with compliance and regulatory guidance in the year ahead.

The industry regulator, overseen by the Securities and Exchange Commission, covered 26 topics in the report and noted a focus this year on cybersecurity, cryptocurrency assets, artificial intelligence’s potential impact on regulatory obligations and guidance on supervision and retention of off-channel communications.

Some of the focus areas were hot-button issues in 2023 under SEC Chairman Gary Gensler’s leadership and were also flagged in the SEC’s annual look ahead priority release in October 2023.  

“As our industry evolves, so do the compliance challenges faced by firms, which is why the report is so critical,” Greg Ruppert, FINRA’s executive vice president of member supervision, said in a statement. “Some of the topics covered will be familiar from past reports, updated for 2024, while others are new and represent emerging risks and evolving trends that are of growing importance as we look ahead.”

FINRA added four new topics areas in this year’s report to add guidance on:

• Cryptocurrency asset-related activity and how firms should identify and address the “relevant regulatory and compliance challenges and risks”;
• Quotations of fixed-income securities by broker/dealers in a source other than the national securities exchange, such as the OTC market for over-the-counter securities;
• Advertised trading volume to ensure no misrepresentation of the purchase or sale of securities; and
• Appropriate management of market access given to customers to manage risks for those clients, the firm itself, other market participants and the general “stability of the financial system.”

Other topics FINRA pointed out for close monitoring in the year ahead were: cybersecurity; money laundering, fraud and sanctions violations; Regulation Best Interest and Form CRS [customer/client relationship summary]; and Consolidated Audit Trail rules.

The report also summarized noteworthy findings and observations from recent oversight activities, outlined effective practices that FINRA observed and provided resources to member firms to help them review their supervisory procedures and controls and meet their compliance obligations.