Last week, the Financial Industry Regulatory Authority (FINRA) issued its combined 2013 Year in Review and Annual Financial Report. The summary overview issued by FINRA’s Chairman and CEO Richard Ketchum in particular provides significant insight about where FINRA is focusing its attention and regulatory resources.
Chairman Ketchum’s report indicated a continued focus on two initiatives FINRA began last year: using technology to improve its market oversight capabilities and engaging in focused risk mitigation efforts rather than a more generalized approach.
In the first area, FINRA reported that in 2013 it invested nearly 25 percent of its total annual spending on upgrading its technology systems. In particular, FINRA invested in cloud computing and enhanced its surveillance systems to enable the agency to process the increasingly large volumes of data generated in today’s securities markets. Chairman Ketchum emphasized that these technological upgrades are central to the organization’s risk-focused strategy, which is designed to enable FINRA to bring the most resources to bear on those areas that pose the greatest threats to investors and market stability generally.
The other major developments the FINRA Year in Review report included:
- A continued shift to data-driven broker/dealer firm examinations with scopes that are narrower but more closely aligned to detect specific types of problematic activity;
- Enhancements to FINRA’s risk-based surveillance of individual high-risk financial advisors, including implementing targeted, reviews of individuals FINRA believes pose a significant risk to investors or the industry;
- Implementation of expedited processes for suspending or barring advisors who have harmed investors or violated FINRA rules;
- Increased focus on investigating firms that offer investors unsuitable complex and high-yield products, and for failure to follow anti-money laundering procedures;
- Detection of questionable trading activity that led to FINRA referring 660 fraud and insider trading cases to the SEC and other agencies in 2013; and
- Scrutiny of high-frequency and algorithmic trading activity to prevent manipulative or disruptive electronic trading.
Looking ahead to the balance of 2014, FINRA can be expected to continue devoting significant resources to examining high-frequency trading, especially given the media splash caused by the new book Flash Boys. So, too, will insider trading remain a priority, as FINRA works to align its efforts with those of the SEC and Department of Justice, both of which continue to make detection and punishment of insider trading a major regulatory focus.