More than a year after revamping its suitability rule, the Financial Industry Regulatory Authority has issued a study guide of sorts for broker-dealers (BDs) to help them prep for suitability exams.
Notice to Members 13-31 discusses issues that have cropped up during exams in the last year, with some of the infractions serious enough to be referred to enforcement. It highlights exam areas, common findings and effective practices when complying with the revised suitability rule, which became effective on July 9, 2012.
A review of FINRA’s findings by the law firm Davis Polk found that the most frequent deficiency found among firms that were examined was inadequate procedures for hold recommendations — how the firm supervises and, when necessary, documents such hold recommendations.
FINRA states that most of these deficiencies were addressed through a “Cautionary Action” that cited firms for inadequate supervisory procedures. However, FINRA said that it would also consider formal disciplinary action for more serious violations when appropriate, such as cases involving unsuitable recommendations.
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