Regulatory Oversight

  • One of FSI’s top priorities this year is to pursue significant changes at FINRA. On January 28, 2013, the FSI Board of Directors approved several FSI staff recommendations which seek to change and improve FINRA in four major ways: robust cost benefit analysis for rulemaking; changes to the arbitration process; implementation of procedures that promote exam consistency and efficiency; and enhancing transparency in FINRA’s operations.

    Our independent financial services firm and independent financial advisor members engage more often with FINRA than any other securities regulator. Improving members’ experiences by reducing the burden placed upon them by inefficient regulatory requirements will make it easier for them to serve their clients and improve FINRA’s image. A breakdown of these four items follow:

    Robust Cost-Benefit Analysis Requirements for Agency Rulemakings

    • Implement cost-benefit analysis early in the process: FSI supports the implementation of a systemic cost-benefit process at the earliest stage of the rulemaking process that clearly identifies the problem the rule proposal is designed to solve, the underlying assumptions made in proposing the rule, and that leads to a final rule only if the benefits clearly outweigh the costs.
    • “Look-back” requirement: FSI seeks a requirement for newly adopted rules that examines whether they are achieving their intended purposes while avoiding unnecessary costs, and eliminates rules that fail this requirement. FINRA would also be required to review its entire rulebook to revise or eliminate ineffective rules.
    • Publish document detailing process: FINRA should provide the public with details of their cost benefit process in a fashion similar to the SEC’s decision to publish its memorandum on guidance for economic analysis.

    Changes to the FINRA Arbitration Process

    • Motion to Dismiss Rule: The revisions to the Motion to Dismiss rule makes dismissal of claims on statute of limitations or eligibility grounds all but impossible, resulting in increased legal fees and additional settlement negotiation leverage for claimants who pursue frivolous cases.
    • Public Arbitrators: Data has shown that the recent changes implementing the all-public panel option has resulted in a pendulum shift toward claimants in arbitration cases. In addition, attorneys who earn 100 percent of their revenue from representing claimants in arbitration cases continue to qualify as public arbitrators.
    • FSI Task Force: FSI has formed a Task Force made up of experienced attorneys, arbitrators, and broker-dealer executives which is tasked with developing a white paper summarizing proposed changes and improvements to the process.

    Promote Exam Consistency & Efficiency

    • Feedback Processes: FSI supports measures that allow firms to provide feedback to FINRA examiners which will be reviewable and measurable in order to establish a benchmarking process for identifying inconsistent rule interpretations and exam experiences.
    • Make Uniformity a Priority: FSI is calling on FINRA to establish additional processes and procedures to review exam feedback in order to implement changes to the exam process that will result in increased uniformity and consistency.

    Increase Transparency and Accountability

    • Meeting Transparency: Enhance members’ ability to actively participate in FINRA governance by publishing agendas to all FINRA Board of Governors, Small Firm Advisory Board, District and other standing committee meetings.
    • Transparent Disclosure: Prominently disclose details of FINRA’s lobbying activities, investment transactions, and compensation for top executives.
    • Ombudsman:  Raise the profile of the FINRA Ombudsman and educate members on its role.