On January 22, 2019, FINRA released its “2019 Risk Monitoring and Examination Priorities Letter” which identifies topics that FINRA will focus on in the coming year.
As always, suitability remains one of FINRA’s top priorities in the coming year.
Some of the specific areas on which FINRA may focus in 2019 include: (1) deficient quantitative suitability determinations or related supervisory controls; (2) overconcentration in illiquid securities, such as variable annuities, non-traded alternative investments and securities sold through private placements; and (3) recommendations to purchase share classes that are not in line with the customer’s investment time horizon or hold for a period that is inconsistent with the security’s performance characteristics (which could include, for example, a recommendation to purchase and hold a security that is intended for short-term trading or to engage in short-term trading in products designed primarily for long-term holding).
In addition, as the exchange-traded product (ETP) market continues to grow with novel and increasingly complex products, FINRA will evaluate whether firms are meeting their suitability obligations and risk disclosure obligations when recommending such products. These include leveraged and inverse exchange-traded funds (ETFs), floating-rate loan ETFs (also known as bank-loan or leveraged loan funds) and mutual funds that invest in loans extended to highly indebted companies of lower credit quality.
FINRA also noted that it remains concerned about securities products that package leveraged loans (e.g., collateralized loan obligations). Although these products are typically sold via private placement to qualified institutional buyers, firms that may be selling them to retail investors will be subject to review as to how such firms are supervising such transactions to ensure their compliance with applicable sales restrictions.
If you are an individual or institutional investor who has any concerns about your investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).