In a preview of FINRA's 2016 letter on regulatory priorities and emerging risks, FINRA's CEO, Richard Ketchum said that FINRA’s exam focus in the upcoming year will be on three key issues: outsourcing, cyber risk and liquidity concerns. Ketcham also said that FINRA will repeat “some version” of its liquidity stress tests in 2016, further indicating that these stress tests will be an ongoing focus of FINRA.
In 2015, FINRA conducted a review of policies and practices at 43 firms related to managing liquidity needs in a stressed environment. The review had two broad purposes:
- to understand better firms’ liquidity risk-management practices and
- to raise awareness of the need for liquidity stress planning.
The stress testing included assessing firm management’s knowledge and understanding of the liquidity risks that their firm faced, the firm’s ability to measure liquidity needs in stress situations, management’s preparedness and plans for addressing such a scenario should it arise, and the specific steps the firm would take to address its needs. Thirty-seven firms passed the test. The six firms that did not pass are currently under “heightened surveillance,” Ketchum said.
Using the results of the stress tests, FINRA developed guidance issued in September intended to help senior management and risk managers to ensure the availability of cash or highly liquid assets to support a broker-dealer’s funding needs under both normal and stressed conditions, including idiosyncratic or systemic events.