Financial Industry Regulatory Authority Update - First Quarter 2020

The Compliance and Regulatory Consulting practice summarizes announcements and priorities relating to FINRA from the first quarter of 2020. 

FINRA Launches New Data on Treasury Securities Trading Volume

According to a news release on March 10, 2020, FINRA now posts weekly aggregate data on the trading volume of Treasury securities reported to FINRA’s Trade Reporting and Compliance Engine (TRACE®). 

“The new Treasury Aggregate Statistics report provides trading volume of U.S. Treasury securities reported to TRACE for the prior week. The information is aggregated by Treasury security subtype: bills, floating rate notes (FRN), nominal coupons and Treasury inflation-protected securities (TIPS). The data are further grouped into two categories: alternative trading system/interdealer transactions, and dealer-to-customer transactions.”¹

Read more here.

New Rate for Fees Paid Under Section 31 of the Exchange Act

“On January 9, 2020, the SEC announced in its second fee rate advisory for fiscal year 2020 that effective February 18, 2020, the Section 31 fee rate applicable to specified securities transactions on the exchanges and in the over-the-counter markets will increase from its current rate of $20.70 per million dollars in transactions to a new rate of $22.10 per million dollars in transactions. Until that date, the current rate of $20.70 per million dollars will remain in effect. The assessment on security futures transactions will remain unchanged at $0.0042 for each round turn transaction.”²

Read more here.

FINRA Promotes Jessica Hopper to Head of Enforcement

FINRA announced on January 17, 2020 that it promoted Jessica Hopper to executive vice president and head of enforcement, reporting directly to CEO Robert Cook. Since Susan Schroeder announced her departure in September 2019, Hopper has been acting head of enforcement. 

Hopper joined FINRA in 2004 as an enforcement attorney and was director in the Washington D.C. office from 2005 until 2011, when she was promoted to vice president in charge of the regional enforcement program. In 2016, she was named senior vice president and deputy head of enforcement before being named acting head of enforcement in September 2019.

Read more here.

FINRA Releases 2020 Risk Monitoring and Examination Priority Letter

On January 9, 2020 FINRA released its 2020 Risk Monitoring and Examination Priorities Letter, highlighting new priorities as well as identifying areas of ongoing concern that FINRA will continue to focus on in the coming year.

New for this year is a focus on regulation best interest (Reg BI) and client relationship summary (Form CRS). In the first part of the year, FINRA will review firms’ preparedness for Reg BI to gain an understanding of implementation challenges they may face. After the June 30, 2020 compliance date, FINRA will examine firms’ compliance with Reg BI, Form CRS and related SEC guidance and interpretations.

Among other issues identified in the 2020 priorities letter are:

• Communications with the public, with a focus on private placement retail communications and communications via digital channels;
• Cash management and bank sweep programs;
• Direct market access controls;
• Best execution;
• Disclosure of order routing information; and
• Cyber security.

In addition, FINRA will continue to review firms’ compliance in areas such as systems for supervision, sales practice risks, anti-money laundering and fraud, insider trading and manipulation across markets and products.

Read more here.

SEC Approves Amendments to FINRA Rules 5130 and 5131 Relating to Equity IPO’s

To enhance regulatory consistency and address unintended operational impediments, the SEC approved amendments to FINRA Rule 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings) and FINRA Rule 5131 (New Issue Allocations and Distributions), effective on January 1, 2020. 

“Rule 5130 protects the integrity of the public offering process by ensuring that: 1) member firms make bona fide public offerings of securities at the offering price; 2) member firms do not withhold securities in a public offering for their own benefit or use such securities to reward persons who are in a position to direct future business to member firms; and 3) industry insiders, including member firms and their associated persons, do not take advantage of their insider position to purchase new issues for their own benefit at the expense of public customers.”

“Rule 5131 addresses abuses in the allocation and distribution of new issues. The rule prohibits a member firm from offering or threatening to withhold shares it allocates in a new issue as consideration or inducement for the receipt of compensation that is excessive in relation to the services provided by the firm.”³

Read more here.

Information Notice: 2020 and First Quarter of 2021 Report Filing Due Dates

To assist members in their financial reporting obligations, on November 11, 2019 FINRA issued a notice providing the due dates for Annual Report, Financial and Operational Combined Uniform Single (FOCUS) report, Form Custody and supplemental FOCUS report filings that are due in 2020 or the first quarter of 2021. All such filings submitted to FINRA must be made electronically though FINRA’s Firm Gateway. 

Read more here.

Sources
¹ https://www.finra.org/media-center/newsreleases/2020/finra-launches-new-data-treasury-securities-trading-volume
² https://www.finra.org/rules-guidance/notices/information-notice-020320
³ https://www.finra.org/rules-guidance/notices/19-37