FINRA 2015 New Year’s Resolutions

By: Patricia Uceda, Spring 2015 Graduate Research Assistant

Everyone makes New Year’s resolutions, including FINRA. This year is no different. FINRA recently released a letter detailing their areas of intended focus in 2015. According to FINRA, while there was tremendIAcous positive change in the financial industry in 2014, there were also some recurring challenges in some financial firms that should be addressed.  They include:

  • Put customer interests first: A major cause of a lot of the harm in the financial industry is the simple failure of firms not putting their customers’ interests first. Particularly in the case of vulnerable investors such as senior citizens or major liquidity events such as an inheritance or an IRA rollover, poor advice can have devastating and lasting consequences for the investor.
  • Firm Culture: Many of the problems in the financial industry has roots in poor firm culture. For example, if the firm management places excessive emphasis on short-term profits or rapid growth, they may neglect the high standards of ethical behavior that are expected.
  • Supervision and Risk Management: A firm’s systems of supervision, risk management and controls are essential to improving a firm’s culture. Strong supervisory and risk management systems will help prevent harm to investors by deterring improper behavior by firm representatives. It is also important that the supervisory systems be proactive, so that problematic behavior can be identified as soon as possible.
  • Product and Service Offerings: The offering of new products is a continuing concern with many issues such as product complexity, opacity in the market for a product or its underlying components, insufficient or generic disclosure, enticing teaser rate fee structures, and insufficient training for salespersons. These issues can lead to problems with unsuitability.
  • Conflicts of Interest: Conflict of interests are another area of continuing concern that is a contributing factor to many of the regulatory actions FINRA and other regulators have taken against firms and representatives. While there has been some progress in this area, more must be done to adequately address conflicts of interest.

In order to address those challenges, FINRA stated there were five areas of focus that they have resolved to prioritize in 2015. Over the next couple of weeks we will be focusing on those five areas.