Potential Financial Industry Regulatory Authority Changes

By Courtney Johnson, CPA, Business Assurance & Advisory Services Manager | Financial Services Industry Team

Potential changes are coming to the Financial Industry Regulatory Authority (“FINRA”) as it completes a comprehensive top-to-bottom review of its operations and programs under the direction of President and Chief Executive Officer, Robert W. Cook.  Since his arrival in June 2016, Cook has continuously encouraged dialogue between FINRA and the brokerage industry. Cook’s first step in the FINRA operations and program review process was to conduct an extensive listening tour. The tour involved meeting with member firms, investors, and other industry stakeholders with the goal of generating feedback concerning what FINRA is doing well and what it can be doing better.  The major points gathered from the tour were the following:

1. Is FINRA focusing on the right issues, establishing the right standards, and dedicating resources to the right areas to best protect investors and market integrity while promoting healthy and vibrant capital markets?
2. Is FINRA optimally organized and managed to be the most effective and efficient self-regulatory organization that it can be?
3. Is FINRA facilitating a constructive dialogue with all of these parties to understand their perspectives and develop an effective regulatory framework that is fully informed by the expertise and practical knowledge of its stakeholders? [1]

FINRA360

In order to transform this stakeholder feedback into continued progress and improvement, FINRA360 was developed.  The framework of FINRA360, being conducted by FINRA, is a self-evaluation and improvement initiative, taking into accounts all views from inside and outside the organization.  The objective of FINRA360 is to “ensure that FINRA is operating as the most effective self-regulatory organization it can be, working to protect investors, and promote market integrity in a manner that supports strong and vibrant capital markets” [2].  FINRA360 is the first organization-wide self-assessment piloted by FINRA since its formation over ten years ago.

There is no set timetable for FINRA360.  There may be changes in the near term but they will be implemented in phases.  It is not one single project and will span several years.  According to Cook, FINRA360 will build into FINRA “a process of continuous self-improvement” [3].  As the securities industry will never stop changing, Cook believes that FINRA cannot stop either.

FINRA360 aims to encourage collaboration, transparency, and accountability.  The broad principals of the framework are:

1. Remain focused on how to best fulfill the core mission – promoting investor protection and market integrity while facilitating vibrant capital markets;
2. Thinking should consistently reflect FINRA’s identity as a self-regulatory organization, empowered by federal law but separate from the government;
3. Everything must be on the table. [1]

The current topics observed by FINRA360 include the following:

1. The organization and operation of FINRA’s regulatory functions, including whether they are optimal for sharing information and establishing consistent standards across FINRA;
2. The use of data and technology throughout FINRA, including how they can best support efficient decision and policy-making;
3. The tools and metrics used to assess outcomes and success across FINRA’s various regulatory programs and support functions. [2]

One of the first action steps of FINRA360 was a Special Notice issued on March 21, 2017, with the comment period expiring May 5, 2017 [4].  Through this Special Notice, FINRA solicited comment from all interest parties on FINRA’s current engagement programs.  It asked numerous general and specific questions regarding advisory, ad hoc and district committees; FINRA rulemaking; member relations, education and compliance resources; investor education; and FINRA operations.  FINRA is hoping for constructive feedback in order to help make decisions regarding the success or needed improvements of its current rules and programs.

Conclusion

It is still too early to tell what changes are going to come from the FINRA360 project, however, it is clear that things are on the move. Impending proposals are going to continue to promote FINRA’s “most important purpose”, as noted by Cook, “to protect investors from bad actors” and to take aim at “those who seek to evade regulatory requirements and harm investors for their own personal gain” [5].  Brokerage firms should act early to ensure that they are in compliance with any additional regulatory requirements that may emerge.

Questions on this topic? Contact your Keiter representative or 804.747.0000 | Email.

Sources:

[1] – https://www.finra.org/newsroom/speeches/051717-remarks-2017-finra-annual-conference

[2] – https://www.finra.org/about/finra360

[3] – http://www.investmentnews.com/article/20170322/FREE/170329977/finra-launches-360-initiative-to-review-operations-look-at-ourselves

[4] – http://www.finra.org/sites/default/files/notice_doc_file_ref/Special-Notice-032117.pdf

[5] – http://www.subjecttoinquiry.com/uncategorized/proposed-rules-aimed-at-high-risk-brokers-confirm-finra-push-for-firms-to-do-their-part/