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FINRA Mulls Changing Its Rulemaking Process

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The Financial Industry Regulatory Authority plans to ask broker-dealers to weigh in on what changes need to be made to the self-regulator’s engagement and transparency policies — including how it crafts rules.

“I believe that while we do a lot today, we have an opportunity to take a fresh look at whether we can improve our engagement and transparency,” FINRA CEO Robert Cook said during a recent speech at The Harvard Club in New York.

Fresh off a “listening tour” that Cook says he’s been on since being named CEO last June, Cook said the notice, to be issued in the coming weeks, will summarize what FINRA does “now in these areas” and will request comments on “what we should be doing.”

Feedback he’s gotten from his listening tour, Cook said, “indicates to me that we may need to do more, or do it differently.”

A simple example, he said, is that he’s been told that FINRA “should publicly announce our board meetings and agendas in advance of these meetings.”

While FINRA currently provides this information on its website, he noticed “the information was there but difficult to find. We need to change that.”

Some smaller firms, he continued, “feel we do not consistently listen to them in our rulemaking process and that we do not regularly tailor our rules to their unique needs.”

FINRA’s rulemaking process “includes small firm involvement that routinely results in real changes to our rules, even at the early development stage,” Cook said. “But there may be opportunities to improve engagement and transparency in this area, so that firms and the public know that they have a voice, know how they can be heard and see evidence that they have been heard.”

He’s also heard concerns that FINRA fails to incorporate cost-benefit analysis into its rulemaking and have a process for conducting a retrospective review of its rules.

While FINRA does include economic analysis and has a retrospective review process, “we need to raise awareness of these efforts, because our economic analysis and retrospective reviews are markedly improved when firms and the public know about them and participate by providing us with comments and data to inform our decisions,” Cook said.

Cook encouraged candid and thoughtful feedback to the public notice FINRA is issuing, adding that based on the responses received, FINRA would determine “next steps, which might include roundtables or another type of forum to further discuss these issues.”

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