FINRA Alert: 2017 Enforcement Priorities Announced

Earlier this month, FINRA (the Financial Industry Regulatory Authority) announced its enforcement priorities for the coming year. The priorities will set the course for FINRA’s investigators as they inquire, examine, probe and sometimes bring enforcement actions against financial services professionals and their firms.

As a service to our readers—both investors and financial services professionals—we are highlighting FINRA’s priorities here, and we invite you to contact us with your specific questions and concerns.

FINRA will be taking a hard look at the following items, which can be broadly categorized as having to do with compliance, supervision and risk management:

• High Risk and Recidivist Brokers: FINRA has created a dedicated examination unit to “rigorously review these brokers’ interactions with customers, including their compliance with rules regarding suitability, know-your-customer, outside business activities, private securities transactions, commissions and fees.” FINRA will also focus on brokerage firms’ efforts to protect their customers from these high-risk and repeat-offender brokers. (We have written about the phenomenon of bad brokers shuffling from one firm to the next while their firms sometimes get off unscathed.)
• Protecting Senior Investors: As the baby-boom generation reaches retirement age, they are increasingly targeted by unscrupulous financial advisors, and FINRA is working to prevent them from being harmed by elder financial abuse. (Our blog on financial elder abuse is here.) The priorities letter explains: “FINRA will assess firms’ controls to protect senior investors from fraud, abuse and improper advice. We are seeing numerous cases where registered representatives have recommended that senior investors purchase speculative or complex products in search of yield. While the quest for higher yield is not per se problematic, FINRA will assess whether such recommendations were suitable given an investor’s profile and risk tolerance, and whether firms have appropriate supervisory mechanisms in place to detect and prevent problematic sales practices.”
• Suitability and Concentration: Brokers are only permitted to recommend investments that are “suitable” for their customers, taking into account their age, investment experience, investment objectives and risk tolerance. In the coming year, FINRA will prioritize enforcing this requirement. “FINRA continues to observe instances where firms recommend products that are unsuitable for customers, including situations where customers and sometimes registered representatives do not understand important product features.” We have seen this dynamic in many of our clients’ cases, including in a current case where the broker admits—on a recorded line—that she believed the investment was “guaranteed.” We recently wrote about the dangers of “overconcentration,” or the “too many eggs in one basket” problem, and we are glad to see FINRA will be working on the problem.

If you are an investor with questions about your broker’s background, whether you have been the victim of elder financial abuse, or whether your broker’s recommendations have been suitable for you; or if you are a financial advisor with questions or concerns about how FINRA’s enforcement priorities may affect you, please contact a securities attorney at The Galbraith Law Firm. Call 212.203.1249 or email kevin@galbraithlawfirm.com for a free confidential consultation regarding your legal rights.