More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
The Financial Industry Regulatory Authority plans to issue a revised proposal on membership requirements after the self-regulator received pushback from the industry during its first attempt.
In 2010, FINRA issued Regulatory Notice 10-01, which quickly generated responses from the industry arguing, among other things, that the changes “were vague, overbroad, and would be unduly burdensome unless FINRA revised the language,” says David Bellaire, the Financial Services Institute’s (FSI) executive vice president and general counsel.
Bellaire says that while FINRA “did not include many specifics” in its Feb. 14 statement about when or whether it would reissue the proposal, “we’re hopeful that FINRA has addressed the issues” FSI raised.
Richard Ketchum, FINRA’s CEO, noted in a statement regarding FINRA’s Board of Governors’ February meeting that the board “authorized FINRA to publish a Regulatory Notice soliciting comment on the proposed consolidated FINRA membership rules.” While not providing specifics, FINRA said the revised proposal “includes changes in response to comments on the prior proposal.”
“The proposal also includes additional rule provisions to address regulatory issues identified by the staff and to codify existing membership-related interpretations and practices,” FINRA said, “thereby promoting understanding of the membership process.”
In its 2010 comment letter, the Securities Industry and Financial Markets Association (SIFMA) told FINRA that its proposal to transfer the existing NASD membership rules into the Consolidated FINRA Rulebook “would require substantially greater information and disclosures than what is required under existing NASD rules for new membership applications (NMAs) and would expand the categories of business change events that would trigger a continuing membership application (CMA).”
FINRA also proposed in 2010 an “entirely new rule” that would impose an advance written notification requirement for broad categories of business events that do not currently trigger a CMA or other notice to the FINRA staff, SIMFA said. “Although SIFMA agrees in principle with FINRA’s stated goals of streamlining the standards of review for NMAs and CMAs, clarifying certain administrative aspects of the membership application process (MAP), and updating or eliminating outdated terminology,” SIFMA said it was “seriously concerned about the business impact of the new advance notification requirements found in proposed FINRA Rule 1170.”
SIFMA said at the time it was also “troubled by the apparent breadth of two new evaluation standards for FINRA NMAs and CMAs.” One such standard would require “FINRA staff to determine that an applicant’s funding sources are ‘not objectionable’ and the other would require FINRA staff to consider the disciplinary histories for all of an applicant’s affiliates in evaluating whether the applicant is capable of complying with the laws and rules governing member firms, not just those affiliates that control the applicant.”