| NEW YORK, June 6
NEW YORK, June 6 Wall Street's industry-funded
regulator, which usually looks over the shoulders of brokers, is
about to examine its own work more carefully as it prepares a
review of whether its rules make sense for all firms.
The Financial Industry Regulatory Authority is kicking off
the long-anticipated review of the costs and benefits relating
to each of its existing rules for Wall Street, said Richard
Ketchum, FINRA's chairman and chief executive.
The review will consider, among other things, whether some
of those rules should continue to apply across the industry
regardless of a firm's size or business model, Ketchum said
earlier in the week at the Reuters Global Wealth Management
"We're not all large integrated firms," said Ketchum. "We
have a lot of cats and dogs in our membership," he said,
referring to a variety of brokerage sizes and specialties. But
some industry rules do not take those differences into account.
For example, some brokerages that limit their business to a
niche - such as finding private securities offerings for certain
institutional investors - are bound by rules often aimed at
protecting individual retail investors, said Ketchum,
questioning whether that made sense.
FINRA's review follows 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
Many small and specialty brokerages, at the same time, have
been complaining to FINRA that it is impractical for them to
follow rules put in place mainly for large retail brokerages.
The regulator, which oversees 4,250 firms and nearly 630,000
brokerages, expects to publish an initial update about its
progress by October, Ketchum said.
FINRA recently hired Jonathan Sokobin, a former high-ranking
Treasury Department official, to oversee the review as the
regulator's first chief economist.
Ketchum's acknowledgment that all industry rules may not be
practical for all firms was met with relief by compliance
professionals who advise small and specialty firms.
"I'm glad to see that Rick Ketchum has finally heard the
message that people are telling him over and over again," said
Howard Spindel, senior managing director of Integrated
Management Solutions, a New York-based compliance consultancy.
"One-size-fits-all works maybe with socks, but broker-dealers
are very heterogeneous," Spindel said in a telephone interview
FINRA's economic review is part of a broader effort by
securities regulators to more deeply scrutinize the potential
costs and benefits of securities industry rules.
The SEC wants FINRA to better support the economic aspects
of proposals it submits to for review, Robert Colby, FINRA's
chief legal officer, said last year.
Wall Street's major lobbying group, the Securities Industry
and Financial Markets Association (SIFMA), has also been calling
for the SEC to conduct a deeper economic analysis of its rules.
While U.S. 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 securities industry has pressed for more economic
analysis, but investor advocates say it can hamper efforts to
regulate the industry properly. In May, a divided U.S. House of
Representatives passed a Republican-sponsored bill that would
force the SEC to conduct more economic analysis before adopting
rules for Wall Street.
"This is a proxy for disemboweling regulation," said former
SEC Commissioner Arthur Levitt this week at the Reuters Global
Wealth Management Summit.
The SEC already makes "painstaking efforts" to determine
costs and benefits of its rules, Levitt said.
FINRA's own review, however, may ultimately lead to
overhauling some rules that don't make sense when applied at
certain firms, said Spindel of Integrated Management Solutions.
One rule, for example, requires a firm's chief executive to
certify in writing each year that he met with the firm's
compliance officer and ascertained there were processes in place
to ensure compliance with industry rules.
That may work fine in a large firm where the chief executive
and chief compliance officer are two different individuals.
However, one person may often wear both those hats in a
smaller brokerage, Spindel said. That would make a required
meeting between the two executives tricky, said Spindel.
"Who would he be talking to?" Spindel asked. "Himself?"
(Additional reporting by Sarah N. Lynch; Editing by Linda Stern
and Bernadette Baum)