Spotlight on the 2022 FINRA Examination Report: Communications with the Public | Goodwin

Not surprisingly, FINRA’s 2022 Risk Review and Oversight Program report highlighted communications with the public as an area of ​​ongoing focus. The main theme of this focus area relates to the sufficiency of internal processes, procedures and controls. As FINRA has done in other areas, the broker regulator has set out various obligations and related regulatory considerations for businesses, as well as effective communication practices (both “do’s” and “don’ts”). “) extracted from the results of the examinations. We highlight a handful that businesses should focus on.

New focus areas:

  1. FINRA has chosen to highlight Mobile apps for the first time, including encouraging effective practices such as confirming the accuracy of data displayed to clients and that information about tools and application functionality complies with FINRA’s communication rules and other relevant rules before being published (including with regard to the Best Interest regulation if the information provided constitutes a recommendation).
  2. Municipal Securities Announcements also made the list this year. FINRA emphasized (a) obtaining pre-approval of advertisements by a qualified director, including confirming compliance with the content standards of Rule 2210 and MSRB Rule G-21; (b) educate and train firm personnel on applicable FINRA and MSRB firm rules and policies; (c) clearly describing the risks associated with municipal securities (including credit risk, market risk and interest rate risk) to offset claims about their benefits (for example, no “false statement or assertion or misleading regarding security, any unqualified or unwarranted assertions regarding the firm’s expertise, or promissory statements and claims regarding portfolio growth”); and (d) confirming that the potential benefits of tax features are correct and not overstated.

Not new, but certainly still in the lead:

  1. digital asset activity made the list again this year. FINRA notes that effective and compliant communications about these products (a) prominently explain the risks that are essential to offset any related statements or assertions about their benefits (for example, “investments are speculative, involve a high degree of risk, are generally illiquid, may have no value, have limited regulatory certainty, are subject to potential risks of market manipulation and may expose investors to loss of capital”); (b) do not exaggerate the possible benefits of digital assets or embellish the status of digital asset projects or platforms, whether current or future; (c) distinguish the products and services of brokers from those offered by affiliated digital asset businesses (or third parties); and (d) prominently identify entities responsible for activities related to digital assets other than securities, and their service offerings should be accompanied by a description that the services are not provided by the broker and are not do not enjoy the same regulatory protections as securities.
  2. Digital communication channels as social media continues to attract FINRA’s attention. FINRA has emphasized the need for appropriate procedures to oversee digital communication channels, tools and features, including: (a) establishing permitted and prohibited digital communication channels and implementing mechanisms to block prohibited channels, such as those that would interfere with compliance with record keeping requirements; (b) monitor the channels, applications and features offered to associated individuals and customers (for example, red flags that may indicate that a Registered Representative is communicating through unapproved communication channels); (c) WSP and controls for live public appearances, scripted presentations or video blogs; (d) mandatory training and guidance for the use of company-approved digital channels and each component feature and expectations for professional and personal digital communications; and (e) employing internal disciplinary measures for Registered Representatives who fail to comply with the policies (for example, temporary suspensions or permanent blocks or feature blocks and requiring additional training).
  3. Cash management account communications also reappeared on the list this year. This is not surprising, especially with the rise of “yield” products offered by or through various institutions and the add-on banking features (including check writing) that many companies are making available to their customers from brokerage through affiliated or third-party banks. FINRA stressed the importance of confirming business processes in this area and that monitoring systems and compliance programs are adequate. FINRA has encouraged companies to clearly communicate the terms of these accounts, to disclose that the deposits are not cash balances held by the company (i.e., they are destination bank) and not to include any misleading statements or claims indicating or implicating the broker. is a bank or fails to balance promotional claims with participation risks.

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Amanda J. Marsh