Commercial Litigation Update

Last week, FINRA published its 2022 Report on its Examination and Risk Monitoring Program (the “Report”), identifying key areas of focus for broker-dealer exams this year. The Report contains many of the same areas of focus as last year’s report, including anti-money laundering, cybersecurity, Reg BI and Form CRS, communications with the public, best execution and segregation of customer funds. Although the Report again identifies these general areas, it identifies new concerns and recent examination findings in those areas. In an effort to be user friendly, the Report highlights that new content in bold and identifies new areas for 2022. A key takeaway from the Report is the continued challenges posed by technology.

Over the past 15 years, chief compliance officers (“CCOs”) for financial services firms have come under increased scrutiny as the Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) have brought more frequent enforcement actions seeking to hold CCOs personally liable. CCOs understandably have been concerned about this trend and financial service firms have focused on the chilling effect that the enforcement actions may have on the vital role CCOs play in their organizations and the quality of the COO applicant pool.

Recently, the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert to provide broker-dealers with guidance on examinations regarding regulation Best Interest (“Reg BI”).  Reg BI requires that when broker-dealers make a recommendation regarding securities to a retail customer it must act in the best interest of the customer, without placing its own financial or other interest ahead of the retail customer’s interest.  The Financial Industry Regulatory Authority (“FINRA”) also ...