| June 27
June 27 Wall Street's industry-funded watchdog
has scrapped a controversial plan that would have required
brokerages to supervise business lines that are not related to
the securities industry, according to a recent regulatory
The Financial Industry Regulatory Authority, in a
long-awaited proposal that would streamline rules for how
brokerages should supervise themselves, dropped the idea it had
initially proposed to the U.S. Securities and Exchange
Commission in 2011.
FINRA, as part of a sweeping supervision proposal it
submitted to the SEC on June 21, said it was the "best course"
to eliminate the plan. However, other FINRA rules would still
apply to business activities by firms and their brokers that are
unrelated to the brokerage industry, the group said.
The regulator oversees 4,250 brokerages and about 630,000
Brokerages, in numerous letters, had balked at the original
It would have forced them to become deeply involved in
monitoring other types of investment businesses that their
brokers may have engaged in outside of their firms.
For example, many brokers who are licensed through
independent broker dealers, such as LPL Financial Holdings Inc,
also run registered investment advisory firms, which
are not part of the brokerage. Those businesses are regulated by
the SEC instead of FINRA.
The plan could have also tied brokerages to moonlighting
activities by brokers, such as selling insurance or being
landlord, critics said.
Existing FINRA rules, nonetheless, still mean that
brokerages have to keep an eye out for business activities that
brokers engage in outside of the securities industry, said
Gerald Baker, a compliance consultant in Kewadin, Michigan.
FINRA already requires brokers to get advance permission
from their brokerages before engaging in business outside of the
firm. Many brokerages, however, simply ban the practice.
FINRA's 317 pages of proposed supervision rules aim to
consolidate two sets of rules from its predecessor organization,
the National Association of Securities Dealers, and the
regulatory arm of the New York Stock Exchange. The two entities
formed FINRA in a 2007 merger. In 2011, the regulator withdrew a
previous version of the plan that it had submitted to the SEC.
Other parts of FINRA's revised proposal, submitted to the
SEC on June 21, address supervising brokers of independent firms
who work far away from their home offices, reporting findings of
internal investigations and keeping track of customer
complaints, among other things.