FINRA flags rising risk of scams targeting seniors

Among other things, the report flagged new concerns for regulators, such as inadequate supervision to guard against manipulative trading, fair pricing practices in fixed-income markets, compliance with short-selling rules, and oversight of firms dealing in fractional shares.

It also pointed to an emerging financial crime risk involving the exploitation of senior investors.

The SRO called on firms to ensure they’re adequately monitoring for signs of criminal activity targeting senior investors, such as using specialized surveillance for red flags of elder exploitation.

The report also highlighted recent market manipulations involving small-cap IPOs, including so-called ramp-and-dump scams.

“FINRA has observed significant unexplained price increases on the day of or shortly after the IPO of certain small-cap issuers,” it said, noting that these price moves appear to be driven by manipulative orders and trading activity, and that some of these scams seem to be carried out through social media, similar to “fraudulent crypto-related investment schemes.”

The SRO called on firms to ensure they’re aware of potential indicators of these kinds of schemes, and to ensure their compliance and risk management programs “are monitoring for and addressing this threat.”

The report also addressed a range of other issues, including compliance with best-interest rules, disclosure and suitability when dealing in complex products, and the growing risks to investors posed by the use of mobile apps.

Additionally, FINRA noted it recently carried out a targeted review of firms’ cryptoasset communications, to assess “whether these communications contain false or misleading statements or claims, misrepresent the extent to which the federal securities laws or FINRA rules apply to a cryptoasset product or service, or fail to balance the benefits of cryptoasset products with their associated investment risks.”

The results of these reviews will be released at a later date.

“This report represents a holistic approach to FINRA regulation, leveraging information from across our regulatory operations to provide member firms with information to help them enhance their core compliance programs,” said Greg Ruppert, executive vice-president, member supervision with FINRA, in a release.

“The report addresses topics that remain perennially important, with updates to reflect evolving risks, industry trends and findings from FINRA’s recent oversight activities,” he said. “This year, we have also increased the breadth of the report’s coverage by adding several new topics focused on insights originating in our market surveillance activities.”