The Financial Industry Regulatory Authority (FINRA) recently outlined compliance guidance for firms and their advisors. ThinkAdvisor compiled the following, top seven:
1. Address the Surge in New Account Fraud
New account fraud typically involves criminals creating a new bank, loan, credit or investment account using stolen or synthetic identities, potentially leaving their victims liable for significant monetary losses and legal problems. FINRA member firms should be aware of the emerging threat and implement policies designed to protect clients.
2. Create Remote-Staff Business Activity Monitoring Procedures
FINRA members must follow Rule 3720, the "No Outside Business Activities" rule. In essence, the rule prohibits any registered person from working for or being compensated by another person or entity outside the scope of the relationship with the member firm.
According to FINRA executives, firms must update their approach to reflect the increased degree of remote work. Firms can ensure compliance by providing regular reminders concerning the rule to remote staffers, especially those new to the industry.
3. Be Mindful of Digital Signature Practices
According to FINRA executives, the regulator has received numerous public complaints and member firm disclosures regarding registered representatives' abuse of digital signatures. By effectively monitoring clients' email addresses of record and viewing where their signatures are going and coming from, firms can spot this issue.
4. Regularly Reassess Vendor Risk
New technology with external vendors can enhance a firm's value proposition and client resources; however, it can also be a source of substantial risk. Firms must understand the services they have that are connected to application programming interfaces (APIs).
5. Monitor for Manipulative Trading
FINRA has observed that issuers of low-priced securities have made several misrepresentations concerning COVID-19-related products or services. Regulatory Notice 21-03 addresses the various requirements and responsibilities related to low-priced securities trading.
6. Understand Risks Posed by Client Behavior
A firm must understand its customers and what they are doing. Specifically, firms should be on the lookout for clients that log into their accounts from foreign countries or at odd hours. Those are generally telltale signs of cyber-phishing attacks.
7. Do Not Be Misled By New Mobile Apps
FINRA has noted issues with mobile apps developed or deployed by its member firms. According to FINRA, many firms have mobile apps that fail to adequately distinguish between the products and services of the broker-dealer and those of affiliated third parties. Additionally, the apps need to provide the required disclosures and explanations of high-risk products or services offered to customers.
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