The Financial Industry Regulatory Authority (FINRA) is undertaking a review of U.S. broker-dealers’ efforts to identify, mitigate and manage conflicts of interest — particularly in the area of compensation practices.
In a notice, the U.S. financial services sector’s self-regulatory organization states that “conflicts of interest represent a recurring challenge that contribute to compliance and supervisory breakdowns, which can lead to firms and registered representatives, at times, compromising the quality of services they provide to clients.”
The regulator says that although it has seen some signs of improved practices in this area since it issued a report on conflicts of interest in October 2013, this new review aims to continue examining firms’ efforts.
This latest review covers the past 12 months and is limited to dealers’ retail accounts. In its notice, FINRA poses a series of questions to firms on their policies and practices for dealing with compensation-related conflicts and, the supervisory arrangements that firms have in place to address these issues. FINRA is seeking responses to those questions by Sept. 18.
Earlier this year, FINRA indicated its annual letter setting out its priorities for the year ahead that conflicts of interest remain one of its regulatory priorities: “We continue to focus on fee and compensation structures that lie at the heart of many conflicts and which can at times compromise the objectivity registered representatives provide to customers.”