October 29, 2009

Wall Street regulator FINRA is working to become more proficient at identifying and fighting fraud, said Rick Ketchum, chairman and CEO, during SIFMA's annual meeting this week.

"Already this year, we have enhanced our examination programs, procedures and training in a variety of ways intended to help us better detect conduct that could be indicative of fraud," Ketchum said. Examples of FINRA efforts he cited include: gathering more information—prior to each exam—regarding a firm's ownership and affiliate relationships; identifying indications of problematic behavior concerning the opening of investment advisory accounts at a broker-dealer; examining the relationship between broker-dealers and/or their affiliates with feeder funds, or master funds that utilize feeder funds; identifying potentially fraudulent activity by examining for material misstatements in financial reporting, unusual money movement, and apparent red flags involving a firm's auditor and off balance sheet items.

In March, FINRA established an Office of the Whistleblower to handle high-risk tips and this month, it announced the creation of FINRA's Office of Fraud Detection and Market Intelligence that will review incoming allegations of frauds.

The organization is also turning its attention to Wall Street's use of social networking tools such as Facebook, he said. "Social networking sites such as Facebook or LinkedIn provide new ways to connect, inform and interact with customers," said Ketchum. "They also raise new regulatory challenges. For example, as currently designed they may not allow you to archive and maintain the communications on your own books and records."

FINRA has formed a Social Networking Task Force to look at "how regulation can embrace technological advancements in ways that improve the flow of information between firms and their customers—without compromising investor protection," he said.

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