In keeping with annual tradition, the US Financial Industry Regulators have published their respective Examination Priorities for 2021 (See SEC, FINRA, NAIC, OCC). Not surprisingly, they share a number of overlaps, with the pandemic and the implications of a potential continuation of remote work playing a large role across the board. Regulators continue to examine how financial services firms interact with their audiences, in order to ensure a responsible approach geared towards fair and balanced outcomes.
Although they’ve clearly outlined specific activities they view as counter to fair and balanced outcomes, it is clear that regulators are moving more towards principles-based enforcement. The perennial reminder to include appropriate disclosures, robust supervision regimes, and consistent books and records is, of course, restated within these priorities letters. However, an important call-out is that the regulators are becoming more explicit with regards to checking for non-monitored activities, in the spirit of refocusing towards outcome-based priorities.
FINRA, in particular, has expressed the most explicit requirements around proactive monitoring for communications with the public. Not only are member firms required to monitor unapproved channels, they’re also required to stay abreast of new tools, features and channels, and must ensure their policies are up-to-date with regards to what’s permissible on existing and future channels.
Not all firms are required to adhere to FINRA’s strict requirements; however in our view, this is a critical development, as firms have historically been able to remain confident that a policy-based prohibition on certain communications channels was sufficient for regulators. As the regulatory environment progresses, firms should review their policies and procedures to expand their prohibition policies. Ideally, firms should update their electronic communications surveillance systems to monitor for “channel-hopping” (moving from monitored to non-monitored channels, e.g. email to text), and include robust testing procedures to establish a reasonable basis for disproving channel-hopping.
For assistance updating your policies and procedures, or preparing for upcoming regulatory audits, don’t hesitate to reach out to Hearsay’s in-house Compliance practice, or your sales representative.
