Finra Exam Priorities: Best Execution, Cyber, Tech Governance

Finra recently published its annual examination priorities letter describing the areas of focus for its risk monitoring, surveillance and examination programs in the coming year. Finra oversees broker-dealer firms. Finra said it will continue to monitor firms’ sales practices, compliance with Regulation BI, and their disclosures to investors. Two exam areas that may be of interest to fund directors are best execution and cyber risk management. With respect to best execution, FINRA said it will focus on whether firms use reasonable diligence to determine whether their customer order flow is directed to the best market given the size and types of orders, the terms and conditions of orders, and other factors as required by Finra rules. Finra also said it will continue to review for potential conflicts of interest in order routing decisions, particularly the impact of zero-commission brokerage activity and whether these zero-commission models result in changes to firms’ routing practices, execution quality, review policies, or the level of trading rebates or payments for order flow. Finra may also assess disclosures and advertisements related to zero commissions. Finra will also look into firms’ cybersecurity programs and the effectiveness of their policies and procedures as well as their technology-related compliance and governance policies.