The Financial Industry Regulatory Authority Inc. (FINRA) released its 2013 regulatory and examination priorities letter. The annual letter alerts the broker-dealer community to what Finra examiners will be looking for in the coming year. FINRA will continue to watch yield-oriented products this year but FINRA also will be focusing on business development companies (BDCs), exchange-traded funds (ETFs) and products that use leverage and the use of automated investment advice writes Dan Jamieson in an article for InvestmentNews.com.
FINRA is “particularly concerned about sales practice abuses, yield-chasing behaviors and the potential impact of any market correction, external stress event or market dislocation on market prices,” FINRA said in the letter.
With reference to BDCs, FINRA warned that they have “significant market, credit and liquidity risks” and risk over-leveraging illiquid portfolios with low-cost financing. Leveraged loans are relatively illiquid and hard to value, while CMBS and high-yield often carry higher risks than normal, given their historically low yields, Finra said. High distribution rates on closed-end funds attract investors who may not understand that some of these funds are returning capital, the letter warned.
FINRA’s notice also expressed concern about a “proliferation” of ETFs and ETNs that use leverage or track volatility measures, emerging markets and currencies.
For the first time this year, FINRA examiners will be looking at the use of automated investment advice.
Just because FINRA doesn’t include something in a current letter doesn’t mean examiners won’t be looking into it.
Securities Lawyer, Lars K. Soreide, of Soreide Law Group, who represents clients nationwide before FINRA. For a free consultation with an attorney on how to potentially recover your losses, call 888-760-6552, or visit our website at: https://www.securitieslawyer.com.