Finra anticipates oversight role for SEC advice rule

CEO Robert Cook says one area for examination could be the proposed requirement that brokers act in the best interests of their clients

May 21, 2018 @ 2:22 pm

By Mark Schoeff Jr.

Finra chief executive Robert Cook said the regulator is likely to play a role in oversight of a new broker investment-advice standard that the Securities and Exchange Commission is developing.

Last month, the SEC released an investment-advice proposal package that includes a regulation that would require brokers to act in the best interests of their clients. It is designed to be a step up from the current suitability standard that governs brokers.

Mr. Cook said that although it would be an SEC regulation, the agency would lean on Finra to ensure that brokers are following it.

"We routinely examine for compliance with SEC rules," Mr. Cook said Monday at the Financial Industry Regulatory Authority Inc.'s annual conference in Washington. "That's not a new thing."

He anticipates that regulating the standard will require SEC-Finra teamwork.

"It's not our rule," Mr. Cook told reporters on the sidelines of the conference. "Exactly what the rule means and how it gets overseen is obviously something that we would be working closely with the SEC on."

Finra doesn't have a position yet on the so-called Regulation Best Interest.

"We're still looking at Reg BI and analyzing it," Mr. Cook told reporters. "At some point, we'll probably share with them our views, if that's helpful to them."

The SEC proposal package is open for public comment until Aug. 7. The agency has taken the lead on investment-advice reform from the Department of Labor. The DOL's fiduciary rule for retirement accounts was struck down by the 5th Circuit Court of Appeals in March, and the Trump administration appears no longer to be defending it.


During his keynote session to open the Finra conference, Mr. Cook also provided an update on the organization's ongoing member outreach and internal reform initiative, Finra 360.

As part of the effort, Finra is reforming its examination program. It is basing the depth and breadth of examinations on a firm's risk profile. The more danger a firm presents to investors or the market, the more frequently and in-depth it will be examined.

"Firms should not be subject to a one-size-fits-all exam," Mr. Cook said.

He said firms won't necessarily be put in one-, two- or three-year cycle buckets. But Finra's goal is to examine each of its 3,719 member firms once every four years.

"Each year, we're making a risk assessment as to whether your firm is one that we should be visiting this year," Mr. Cook said.

One emphasis of Finra 360 has been listening to small-firm concerns. Mr. Cook said Finra's small-firm hotline has received about 800 calls in its first two months of operation. The regulator also recently conducted its first small-firm conference call, which drew 788 participants for the 45-minute conversation.


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