Back to Basics: FINRA Issues 2009 Examination Priorities

On March 9, the Financial Industry Regulatory Authority (FINRA) issued its annual communication to member firms outlining its 2009 Examination Priorities. FINRA’s 2009 letter highlights a number of issues that have gained significance in the current market environment. Not surprisingly, this year’s letter tackles almost twice as many topics as did last year’s letter. Although some topics appear every year—supervision, seniors—and others make their debut or are substantially expanded upon—alternative investments, cash alternatives, protection of customer information, Exchange Act Rule 15c3-3 (the customer protection rule)—the key theme is that member firms should get back to basics: know your business, know your products, know your customers, and create supervisory systems and controls tailored to your firm’s business mix and the current market environment.

At the outset, FINRA’s letter stresses the importance of strong compliance, supervision, and risk management, and advises member firms to carefully consider the impact of headcount reductions in non-income-producing areas such as compliance, finance, operations, and other control functions to determine whether they are proportionate to reductions in the relevant business areas. Also, as member firms look for new income streams, the letter reminds them to review new products and business activities in terms of both supervisory procedures and communications made to customers.

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