Compliance and Regulatory Alerts | 02-24-25
FINRA 2025 Regulatory Oversight Report with Bates Comparison Chart
FINRA's Regulatory Oversight Report offers key insights and observations from its Member Supervision, Market Regulation, and Enforcement programs. The 2025 report covers 24 topics, including several new areas that highlight emerging risks and industry shifts. This annual report remains a critical resource for member firms, providing valuable guidance to strengthen compliance programs and adapt to evolving regulatory expectations.
Tracking Regulatory Priorities Over Time
To help firms better track regulatory priorities over time, we have updated our Bates Comparison Chart, mapping the evolution of FINRA’s oversight focus and the impact of emerging issues on compliance frameworks. This annual chart provides a side-by-side view of how priorities have shifted, helping firms anticipate and prepare for regulatory developments.
New Priorities for 2025
The 2025 report covers 24 topics, including several new areas that highlight emerging risks and industry shifts. Among the key additions are:
- Third-Party Risk Management – Heightened concerns over cyberattacks and operational disruptions at third-party vendors supporting financial firms.
- Reg BI Compliance for Complex Products – Enhanced focus on sales practices and best interest obligations for products like registered index-linked annuities (RILAs).
- Extended Hours Trading – The continued expansion of trading beyond regular market hours, including overnight sessions, and its implications for firms and investors.
- Artificial Intelligence (AI) in Financial Services – The cautious but increasing use of AI and Generative AI tools to enhance efficiency while managing associated risks.
- Investment Fraud Trends – The rise of sophisticated fraud schemes targeting investors directly and the evolving tactics of bad actors.
- Remote Supervision & Trade Reporting Updates – Adjustments to FINRA’s supervisory framework, including remote inspections and fractional share trade reporting enhancements.
Key Items of Interest
Continued Focus on AML System Testing and Validation – FINRA continues to stress the importance of strong AML monitoring, testing, and validation. Firms must ensure their AML programs identify and investigate unusual withdrawal requests, particularly those involving elderly or vulnerable customers, as such transactions may signal fraud. Reviewing transactions for suspicious patterns, integrating updates from regulatory bodies, and maintaining thorough risk assessments are also key priorities.
Firms engaged in low-priced securities or small-cap IPOs must have robust AML procedures in place to detect red flags, as outlined in FINRA Regulatory Notices 21-03 and 22-25. Surveillance systems must function effectively, capturing necessary data to support timely escalation of suspicious activity. Finally, FINRA stresses that AML procedures should be tailored to a firm’s unique business model, particularly for those offering direct market access or alternative trading system (ATS) services.
Regulatory Obligation to Designate a FINOP – FINRA reminds firms of their obligation to designate a Financial and Operations Principal (FINOP) under Rule 1220(a)(4) and ensure compliance with SEA Rule 15c3-1. The FINOP—whether full-time or part-time—is responsible for the accuracy of financial reports, supervision of financial recordkeeping, and back-office operations oversight.
Firms using part-time FINOPs must ensure they have full access to all relevant books, records, and business activity information. FINRA has observed deficiencies in some firms, particularly with FINOPs lacking access to records or failing to perform required reconciliations. Additionally, FINRA emphasizes that while firms must designate a Principal Financial Officer (PFO) and Principal Operations Officer (POO), these roles do not relieve the FINOP of their regulatory responsibilities. Failure to comply can result in disciplinary action against both the firm and the FINOP.
How Bates Can Help
Bates Group is ready to assist your firm in navigating the 2025 FINRA priorities. Whether you need support with AML model validations, regulatory compliance assessments, or an outsourced FINOP solution, our team is here to help.
Contact us today to discuss how we can support your compliance efforts and regulatory needs.