2016RegulatoryandExaminationPrioritiesLetter-finra.PDFVIP

January 5, 2016 Introduction FINRA’s 2016 Regulatory and Examination Priorities Letter identifies both new areas of focus as well as areas of recurring concern. We first address three broad issues—culture, conflicts of interest and ethics; supervision, risk management and controls; and liquidity— and then discuss more narrowly focused topics. As always, there is a tension between our desire to be brief with this letter while also addressing the many areas of potential concern that can arise across the breadth of the securities industry. Broad Issues Culture, Conflicts of Interest and Ethics While firms may have their own definition of “firm culture,” we use it here to refer to the set of explicit and implicit norms, practices, and expected behaviors that influence how firm executives, supervisors and employees make and implement decisions in the course of conducting a firm’s business. In 2016, FINRA will formalize our assessment of firm culture while continuing our focus on conflicts of interest and ethics. Firm culture has a profound influence on how a firm conducts its business and manages its conflicts of interest. FINRA does not seek to dictate firm culture, but rather to understand how it affects compliance and risk management practices at firms. That understanding will inform our evaluation of individual firms and the regulatory resources we devote to them. In our assessments, FINRA will focus on the frameworks that firms use to develop, communicate and evaluate conformance with their culture. We will assess five indicators of a firm’s culture: whether control functions are valued within the organization; whether policy or control breaches are tolerated; whether the organization proactively seeks to identify risk and compliance events; whether supervisors are effective role models of firm culture; and whether sub-cultures (e.g., at a branch office, a trading desk or an investment banking department) that may not con