Investment Management Law: FINRA Warns Firms to Assess Liquidity Risk Management

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Investment Management Law: FINRA Warns Firms to Assess Liquidity Risk Management

FINRA Warns Firms to Assess Liquidity Risk Management

FINRA Warns Firms to Assess Liquidity Risk Management (11/12/10) In a recent Regulatory Notice, FINRA instructs members to develop and implement liquidity risk management program designed to weather “a broad range of adverse circumstances, including extraordinary credit events.” Firms should develop contingency funding plans at both the holding company and at the broker-dealer level. Funding plans should consider “various market scenarios” including loss of funding sources, deteriorations in asset quality, market contagion, and earnings volatility. FINRA warns against an “[o]ver reliance on shorter-term funding to finance longer-term assets.” FINRA offers lists of liquidity measures and red flags.

OUR TAKE: Running out of funding is not an excuse but a violation in and of itself.

www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p122388.pdf

Posted by Todd Cipperman at 11/12/2010 7:17 AM

Categories: Compliance and Operations
Tags: brokerdealer liquidity funding

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