The
Financial Industry Regulatory Authority Inc. is proposing a rule that would let the regulator demand more frequent financial reporting from its member firms — and as a first step, it wants more details on revenue and expenses.
Brokerage firms use Focus reports to file basic financial information with regulators.
In a request for comments posted late last month, Finra said that it wants the ability to get “additional financial or operational schedules or reports as Finra may deem necessary.”
The additional information would be in the form of supplemental Focus reports, Finra said in Regulatory Notice 10-33.
The first supplemental report would require disclosure of detailed revenue and expense data — and notably, more data on private placements sold by small firms.
The regulator would require information on unregistered securities offerings if those products amount to 10% or more of a firm's revenue. Firms would have to supply the name of the offering party, amounts sold and commissions received on the deals.
Sales of suspect private placements have caused major problems for a number of independent broker-dealers. Finra has been concerned about the liability that these small firms face.
The proposed rule would “enhance the risk modeling that is key to making our examination program as efficient and effective as possible,” Finra spokeswoman Nancy Condon wrote in an e-mail.
Finra has already stepped up its requests for extra financial information, according to observers.
Ken Norensberg, managing director at Luxor Financial Group Inc., a compliance consultant, said that he has had “numerous” broker-dealer clients receive letters from Finra demanding monthly Focus reports, instead of quarterly.
FILING SCHEDULE
Most small broker-dealers are on a quarterly filing schedule.
Observers say that Finra has always required extra reporting for firms with financial or operational concerns.
But Luxor's clients have “no issues that I'm aware of that should have prompted the letters,” Mr. Norensberg said.
Ms. Condon confirmed that “a number” of firms have been moved to a monthly filing schedule, but she couldn't immediately provide more information as to why.
Newly formed broker-dealers have been filing monthly Focus reports since about the start of the year, said Michael Brown, owner of B/D Solutions Consulting, a compliance consultant. Finra's latest proposal, together with prior changes, shows an “obvious trend that Finra is writing very broad rules so it can pick and choose what information it wants at any time,” he said.
E-mail Dan Jamieson at [email protected].
