On January 5, the Financial Industry Regulatory Authority released its Regulatory Examination Priorities Letter, which identified its three main areas of focus for the year: (1) Culture, Conflicts of Interest and Ethics; (2) Supervisions, Risk Management and Controls; and (3) Liquidity.

In determining how a firm’s culture affects its compliance and risk management, FINRA will assess five indicators of a firm’s culture: (1) whether control functions are valued within the organization; (2) whether policy or control breaches are tolerated; (3) whether the organization proactively seeks to identify risk and compliance events; (4) whether supervisors are effective role models of firm culture; and (5) whether sub-cultures (e.g., a branch office, trading desk or investment banking department) that may not conform to overall corporate culture are identified and addressed.

In 2016, FINRA will focus on four areas that affect firms’ business conduct and the integrity of the markets: (1) management of conflicts of interest, including what firms are doing to mitigate conflicts of interest that arise through the sale of proprietary or affiliated products, information leaks and the valuation of level 3 assets, (2) technology, including firms’ cybersecurity preparedness and ability to protect the confidentiality of customer information, (3) outsourcing, and (4) anti-money laundering. FINRA notes that firms should routinely test systems and verify the accuracy of data sources to ensure that all types of customer accounts and customer activity are properly identified and reviewed in order to detect and report possible suspicious activity.

In terms of liquidity, FINRA will examine the appropriateness of firms’ emergency funding plans in light of their business models. In addition, in 2016 FINRA also will focus on sales practices and vulnerable investors, the development of Regulation A+, and internal audit processes for identifying and prioritizing risk. Additionally, FINRA is planning to deliver monthly compliance report cards to firms that will provide information regarding instances where potentially manipulative activity (including layering and spoofing) is occurring throughout the firm and instances where some of the activity is occurring throughout the firm and the remainder is effected outside the firm. FINRA will then test how firms use the information provided by the compliance report cards to identify and stop potential misconduct.

To see the Regulatory Examination Priorities Letter, click here.