Highlight from the 3rd Annual Future of Securities Markets: Q&A with Robert L.D. Colby, Chief Legal Officer at FINRA

RMA and Debevoise & Plimpton recently presented the 3rd Annual Future of Securities Markets featuring a panel of discussions focused on current market forces and trends with a view to how they will affect change going forward.

Nancy Foster, president and CEO of RMA, and Jeff Robins, partner, Debevoise & Plimpton, conducted an informative question and answer session with Robert L.D. Colby, chief legal officer at FINRA. Colby identified some of FINRA’s top priorities for 2019 which include setting new protections related to brokers/firms with a history of misconduct, augmenting tools to provide for collectability of monetary awards against firms, working on exam programs with a focus on the riskiest firms, centralizing the provision of interpretive guidance, and setting up a knowledge management system.

Foster addressed the issue of cybersecurity, routinely cited as the single biggest risk to financial markets and firms, noting that it creates unique challenges for regulators. She added that in past years, FINRA has emphasized best practices and has made resources available to firms while also reminding them of duties under privacy regulations. She asked Colby how FINRA strikes the appropriate balance between guidance and enforcement. Colby shared that regulatory interests are generally aligned with those of individual firms and that very little enforcement action has taken place, only in extreme circumstances.

On the timely topic of blockchain, Foster asked what FINRA has learned about the distributed ledger/digital token space and if the industry can expect to see any regulatory initiatives in 2019. Colby indicated that FINRA is examining what firms are doing, and although there is much interest in tokenization and crypto, many firms are not currently active in this space because there are threshold regulatory questions that have not yet been addressed, particularly concerning custody. FINRA has hosted several regulatory forums on this topic and is hoping to work with the SEC to provide guidance this year.

In May 2018, FINRA updated Rule 3310 to conform the rule to FinCEN’s CDD rule, particularly relating to account opening requirements and ongoing monitoring for suspicious activities. (FINRA’s Rule 3310 establishes minimum standards for the required anti-money laundering (AML) compliance programs implemented by broker-dealers.) Foster asked how FINRA will interpret and enforce Rule 3310 in light of its relationship to the BSA and FinCEN’s rules. Colby indicated that FINRA is in frequent discussions with FinCEN and will remain aligned with FinCEN on the rule. FINRA is considering publishing industry learning on practices relating to identifying red flags. 

Washington, The Week Ahead - June 1-5, 2020

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