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FINRA Would Monitor SEC Broker Conduct Rule Compliance: Cook

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Robert Cook, president and CEO of the Financial Industry Regulatory Authority, said Monday that the broker-dealer self-regulator expects to have exam oversight of the Securities and Exchange Commission’s proposed Regulation Best Interest for brokers, if adopted.

At FINRA’s annual conference in Washington Monday, Cook was queried on whether FINRA “will have oversight” of Reg BI.

Cook’s response: “Yes and no. No, in the sense it’s an SEC rule. But yes, in the sense that we routinely examine for compliance with SEC rules. That’s not a new thing. I would imagine any SEC rule, Reg BI, anything else, we’re going to look for compliance with when we do our examinations.”

When examining for an SEC rule, as opposed to a FINRA rule, Cook continued, “we engage in close coordination with the SEC because they’re the ones that hold the interpretive line to decide what’s required and what’s not required.”

In comments to reporters after his remarks on Monday morning, Cook said that FINRA is “still looking at Reg BI and analyzing it. We don’t typically comment on SEC rules. At some point, we’ll share with the SEC our views.”

As to examining broker-dealer firms for compliance with Reg BI, Cook further commented to reporters that “We have a statutory obligation to look for compliance with all FINRA rules, and SEC rules. So if this [Reg BI] was adopted as an SEC rule, we’d have a statutory obligation to oversee it. That said, it’s not our rule, so exactly what the rule means and how it gets overseen is something we’ll be working closely with the SEC on just as we do for other rules that we monitor for compliance.”

Regulation Best Interest is part of the SEC’s three-pronged standard of conduct proposal that the agency approved to issue for a 90-day public comment on April 18.

‘More Work Ahead’ on Exams

What comes next? Cook said that the self-regulator’s top-to-bottom review under FINRA360 — which recently celebrated its first anniversary — is “still far from over,” with “many projects already underway, and year two promises to be just as productive as year one.”

A lot of the focus will be on revamping FINRA’s exams, which Cook said Monday the self-regulator gets “a lot of feedback” on.

FINRA’s new head of member supervision, Bari Havlik, the former chief compliance officer at Charles Schwab who will spearhead the exam changes, “has hit the ground running,” Cook told attendees.

In recent roundtables, Cook said that “we’ve heard that our exams are too long and back up into the ‘cycle exam,’” which doesn’t give broker-dealers ample time to address issues.

“We’ve devoted some resources this year to closing out the exams from the prior year more quickly,” Cook said. “We’re doing the same amount of exam hours this year as last year and we’re trying to focus on the prior year carry-over exams — so we can close those out and address that problem. We’ve certainly heard that feedback about one exam running into another and the team is taking that into account in planning the ‘cycle exam’ program.”

Small Firm Helpline

Since launching its Small Firm Helpline in late January, Cook said the helpline has received 800 calls.

Approximately 3,400 firms that employ150 or fewer registered representatives are registered with FINRA.

The toll-free helpline, staffed by FINRA employees, operates 9 a.m. to 5 p.m. Eastern time and was created under FINRA360.

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