The Financial Industry Regulatory Authority issued a report to provide guidance to member firms on various compliance matters they may be dealing with this year, WealthManagement reports.
In its 2024 Annual Regulatory Oversight Report, FINRA gives firms insights and observations from recent activities of its regulatory operations in order to help firms enhance their compliance programs.
One of the areas of concern involves off-channel communications. The report includes a section on obligations with respect to books and records, including guidance on retaining and supervising off-channel communications.
Firms are required to monitor and save employee communications involving their business and customers, but compliance became more challenging when many employees began working remotely during the COVID-19 pandemic. The SEC then launched a probe into the use of unapproved outside messaging apps such as WhatsApp in the financial industry. Dozens of firms have been fined by the SEC, FINRA and the Commodity Futures Trading Commission for violations in this area.
In its report, FINRA said that because off-channel communications occur on non-firm platforms or devices, there is an increased risk that they are not maintained and preserved as part of the firm’s books and records. The authority asked firms to consider certain questions when assessing whether their compliance programs are designed to supervise and maintain off-channel communications, including whether they have procedures and controls in place to maintain, preserve and monitor all business-related correspondence by staff.
Another concern was cybersecurity. FINRA said it has observed an increase in the variety, frequency and sophistication of certain cybersecurity incidents, including the establishment of imposter websites, insider threats, ransomware and cybersecurity events at critical vendors. The authority said it has provided guidance to firms for identifying, preventing and mitigating incidents through its Cybersecurity Topic Page and its new Industry Risks and Threats Resource page.
Ransomware attacks have reportedly been rising sharply over the past year, said Omer Meisel, Executive Vice President of FINRA’s National Cause and Financial Crime Detection Program. “And the most heavily targeted industry now is the financial sector, having overtaken the health care sector,” Meisel said on FINRA’s recent Unscripted podcast. “So from my perspective, the cyber threat remains one of if not the top threat to the financial industry.”
Also addressed in the regulatory report was the subject of artificial intelligence, which FINRA states is an emerging risk. Firms were advised to consider the regulatory consequences of utilizing AI in their operations. In addition to existing rules and regulatory obligations, FINRA said member firms should be mindful that the regulatory landscape may change as this area continues to develop. The authority noted that development has been marked by concerns about accuracy, privacy, bias and intellectual property, among others.
“The report’s findings from across FINRA’s Member Supervision, Market Regulation and Enforcement programs can serve as a valuable resource for member firms,” said Greg Ruppert, Executive Vice President, Member Supervision at FINRA. “As our industry evolves, so do the compliance challenges faced by firms, which is why the report is so critical. Some of the topics covered will be familiar from past reports, updated for 2024, while others are new and represent emerging risks and evolving trends that are of growing importance as we look ahead.”
The attorneys at Lewitas Hyman regularly monitor SEC, FINRA and other self-regulatory organizations’ rule-making activities to help ensure that our clients are aware of any new policies, while assisting them in implementing any recommended changes. Our clients include broker-dealers, RIAs, banks, investment companies and hedge funds, along with registered representatives and other individuals participating in the securities industry. Should you be in need of experienced counsel regarding a matter involving a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
