Finra to try again on controversial membership rules

Ketchum letter says SRO responding to comments on first try

Feb 19, 2013 @ 3:27 pm

By Dan Jamieson

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((Photo: Lobstar)

The Financial Industry Regulatory Authority Inc. is planning to reissue a package of controversial membership rules.

In an email sent to member firms Feb. 14, Finra chief executive Richard Ketchum said the board had approved issuing a revised proposal in response to comments on the previous one, which was floated in 2010.

The original proposal drew a sharp response from the brokerage industry, which said Finra's plan to require 30 days' notice for changes in a number of routine business activities was too far-reaching.

Among other things, Finra wanted advance notice of new products or services; expansion of personnel beyond certain limits; transactions that involved 10% or more of a firm's ownership, assets or revenue; and changes in a member's service providers.

After receiving advance notice, Finra could have required a formal approval process — known as a continuing-member application — and objected to any changes.

The proposal was designed to avoid fraud at both broker-dealers and their affiliates.

The Securities Industry and Financial Markets Association and the Financial Services Institute Inc. urged Finra to revamp the rule and eliminate many of its requirements.

In its March 2010 comment letter, FSI said the proposal would “provide Finra with excessively broad authority to request documents and information from firms, impose vague standards of review and … extend Finra's jurisdiction well beyond its traditional bounds.”

In his email last week, Mr. Ketchum said the revised proposal would include provisions to address regulatory issues identified by Finra and to codify existing interpretations and practices.

Andrew DeSouza, a Sifma spokesman, and Finra spokeswoman Michelle Ong declined comment about Finra’s plan to reissue the rule.

In a statement, David Bellaire, FSI general counsel, noted that Mr. Ketchum’s email did not specify what will be included in the new proposal.

“We are hopeful that FINRA has addressed the issues we raised in our original comment letter,” Mr. Bellaire said.

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