By Suzanne Barlyn
Sept 25 The Financial Industry Regulatory
Authority will more deeply scrutinize the potential costs and
benefits of securities industry rules it wants to propose, a top
lawyer for the Wall Street industry-funded watchdog said on
T ues day.
FINRA will take the added measures before submitting
proposed rules to the U.S. Securities and Exchange Commission
for approval, said Robert Colby, FINRA's chief legal officer.
The move comes, in part, because the SEC wants FINRA to
"better support" the economic aspects of proposals the SEC must
review, Colby said in remarks to compliance professionals at an
industry luncheon in New York. The SEC must review and approve
rules proposed by securities industry self-regulatory
An SEC spokesman declined to comment.
The SEC became more concerned about costs and benefits of
industry rules when a federal court threw out an important part
of the Dodd-Frank financial oversight law involving
shareholders' ability to nominate corporate directors, saying
the agency's economic analysis was flawed.
Now those concerns appear to be trickling down to rules from
self-regulatory groups that the SEC must review and approve.
Wall Street's top lobbying group, the Securities Industry
and Financial Markets Association, has also been pushing for
more detailed analyses of the costs of certain rules to the
FINRA's heightened focus will probably require the regulator
to hire more economics professionals, Colby said during what he
described as his first public comments since joining FINRA in
June. Among other challenges FINRA faces, trying to understand
and quantify the benefits of a rule can be more challenging than
determining its costs, Colby said.
While the shift is a positive development, it will also mean
a more "rigorous process" for developing or changing industry
rules, he said. The analysis will help satisfy the SEC's review
process, Colby told reporters after his speech.
Critics say pressure from the securities industry, along
with the SEC's focus on costs and benefits at the agency and
beyond, will stifle financial regulation.
"It's put the regulators in a straitjacket in a manner that
is almost certain to ensure that we have a repeat of the
financial crisis and further destruction of American wealth,"
said Lynn Turner, a former SEC chief accountant, in an
interview. "Regulators will not be able to put in place rules
that are necessary to prevent a recurrence," said Turner, now a
consultant at LitiNomics, Inc. in Mountain View, California.
In addition to its economic focus, FINRA also plans to
review the effectiveness of rules already in place, Colby said.
The regulator is planning a schedule for the reviews, which
Colby said would be "time consuming." Still, the process will be
worth the effort since many rules remain on the books for years
without any analysis of whether they are working, he said.
The plan follows a U.S. government report released in May
concluding, among other things, that the SEC does not review
FINRA's rules to determine their effectiveness. The SEC also
does not have a process for that type of review, according to
the Government Accountability Office, an investigative arm of
Congress that released the report.
It is unclear whether FINRA's plan to review its existing
rules is linked to the GAO's findings. An SEC spokesman declined