Robert Cook, CEO of FINRA, embarked on a “listening tour” late last year. He spent months meeting with regulators, policymakers, investors and brokers (among others) to discover their primary concerns and to hear their ideas. What has emerged, it seems, is an agenda that prioritizes transparency at every level.
One of the primary focuses of the tour involved hearing what firms of all sizes, but especially smaller firms, had to say about the rulemaking process. ThinkAdvisor reports that smaller firms feel ignored when it comes to rulemaking, despite being involved in the beginning stages, because their needs are not considered as the rules themselves change. Another concern from firms of all sizes is “that FINRA fails to incorporate cost-benefit analysis into its rulemaking and have a process for conducting a retrospective review of its rules.” In fact, these processes are in place, but as Cook points out, firms (and the public at large) do not necessarily know about them, which gives those groups little to no chance to comment.
What FINRA has pledged to do to help small firms
In Cook’s cover letter for the 2017 Regulatory and Examination Priorities Letter, he asks members to “let us know of any areas on which you think FINRA should focus its regulatory resources to protect investors and bolster market integrity.” He then outlines two steps that FINRA will take while he gathers more information from members.
The first involves publishing summary reports of its examination findings, which will allow firms to make the necessary changes and adjustments to fix the deficiencies. The second step is “to explore how FINRA can provide more, and perhaps different, compliance tools and resources to assist [small firms] in complying with applicable regulatory requirements.” Cook plans to introduce a compliance calendar, a “directory of compliance service providers,” and to send out surveys to gather input and data about what smaller firms need.
Not everyone, of course, is pleased. Barry Goldsmith, former header of the National Association of Securities Dealers, told Investment News that he fears publishing the exam results will lead to “de facto rulemaking.” Investment News reported concern over FINRA “catering to small firms” because “it’s too easy to start a broker-dealer, which means that many fledgling ones are under-capitalized and lack insurance.”
However, as Mr. Cook states in his conclusion to 2017 Regulatory and Examination Priorities Letter, using the information gathered in the exam as “part of a forms’ compliance, supervision and risk management practices can better protect investors, the markets and firms themselves.” We will continue to keep investors updated as the exam progresses.
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