Pictured: FINRA sign in lobby at Brookfield Place in New York. Photo: FINRA
The Financial Industry Regulatory Authority released Thursday a one-year progress report on FINRA Forward, the self-regulatory organization's initiative to revamp its rulebook.
The report details how the regulator is "rethinking" how it works, and details rule changes and other measures that have been finalized as well as those that are still in the works.
"This report goes a long way towards FINRA's transparency goal," said Brian Rubin, partner at Eversheds Sutherland in Washington, on Thursday in an email. "Now, member firms will be able to assess for themselves whether FINRA is moving in the right direction."
The report notes, for instance, that FINRA now requires its "regulatory staff to complete the same continuing education and qualification exams we require of the industry, and we will further evolve our requirements to more fully align with the industry."
At the same time, FINRA also continues "to harness artificial intelligence to become more efficient and effective," the report states.
"We have embedded generative AI-powered tools throughout our organization and made foundational GenAI training available to all staff," the report said, and FINRA is also sharing insights with broker-dealers "to support them as they navigate this transformational technology."
Active Proposals, Exam Shift
One rule change that was finalized: In mid-February, the Securities and Exchange Commission approved FINRA's plan to increase the value limit on gifts by a registered person to $300 from $100 per recipient per year.
One proposal awaiting approval by the Securities and Exchange Commission would narrow the kinds of outside activities that are subject to requirements to those that present heightened risk. The SEC has until May 4 to approve the plan.
The report also explains FINRA's evolving risk-based approach to examinations, noting that examiners are "shifting certain lower-risk firms from a four-year to a six-year examination cycle, while subjecting them to ongoing risk monitoring to verify whether they should be examined more frequently."
FINRA's report states that it's also "streamlining first firm exams for certain firms by tailoring the initial scope based on risk, allowing examination resources to focus on higher-risk areas."
FINRA will now provide firms "with advance notice of the estimated quarter for exams, with plans to provide even earlier notice for 2027 exams."
Looking ahead, FINRA states it "will continue to replace manual examination processes and workflows with an automated platform that leverages internal intelligence to better tailor exams to risk while mitigating manual work and duplicative or broad information requests."
As a self-regulatory organization, FINRA's report states that its "work depends on deep engagement with member firms, the investing public, trade associations, and others. This input is integral to FINRA Forward, enabling us to effectively fight fraud and protect investors, ensure regulatory standards align with modern business practices, and support innovation in technology, products, and services that benefit investors and markets alike. One year in, we are delivering results."
FINRA's rulebook revamp has its detractors. FINRA Forward came under scrutiny in early March during a House subcommittee hearing, with a top investor advocate arguing the initiative has resulted in "unwieldy" rulemaking and is a "path towards securities industry appeasement."
The author can be reached at melanie.waddell@arc-network.com.
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