U.S. FINRA sets official tone for economic review of rules
Sept 19 (Reuters) - The Financial Industry Regulatory Authority, the self-funded securities industry watchdog, on Thursday issued a framework to aid its staff in analyzing the costs and benefits of its rules and provide a public a roadmap of its process.
FINRA's framework is part of a "broader objective" to ensure that its rules "continue to be relevant and appropriately designed," according to a statement on its website.
The framework is the most recent development following a push by the U.S. Securities and Exchange Commission to provide more details about the economic aspects of rule proposals FINRA submits to the agency for approval. The SEC supervises FINRA and must review and approve all of its rule changes.
FINRA laid out three "core principles" for its analysis. They include consulting with those impacted by its rules, such as industry members and various FINRA officials, being clear about the potential impacts of its rule proposals and obtaining evidence, where practicable, about how its rules affect the market and securities industry.
"It creates a bit of consistency - a show your work perspective," said Jonathan Sokobin, FINRA's chief economist. "This is what good regulation should be."
Wall Street's major lobbying group, the Securities Industry and Financial Markets Association (SIFMA), has been pressing the SEC in recent years to conduct a deeper economic analysis of its rules.
While federal law already requires the SEC to analyze the economic impact of its rules, enhancing those efforts could help spare the agency from embarrassing and crippling legal challenges by industry groups.
A federal court in 2011, for example, overturned an important SEC rule required by the 2010 Dodd-Frank Wall Street reform law that made it easier for shareholders to nominate directors to corporate boards. The agency's economic analysis was flawed, the court said.
The SEC's concerns about conducting comprehensive economic analyses of industry rules has trickled down to FINRA which hired Sokobin as its first chief economist.
In June, FINRA kicked off a review of the costs and benefits relating to each of its existing rules for Wall Street. The review considers, among other things, whether some of its rules should continue to apply across the industry, regardless of a firm's size of business model, said FINRA's chief executive, Richard Ketchum, at the time. [ID: nL1N0EG1Z1]
Many small and specialty brokerages have been complaining to FINRA that it is impractical and costly for them to follow rules put in place mainly for large retail brokerages. (Reporting by Suzanne Barlyn; Editing by Leslie Gevirtz)