November 16, 2012 / 8:37 PM / 5 years ago

COMPLY-Revamping of license rule leaves Wall Street in limbo

Nov 16 (Reuters) - A plan meant to ease licensing requirements for securities professionals is languishing in regulatory gridlock.

For more than five years, The Financial Industry Regulatory Authority (FINRA) has been consolidating the separate rules of its predecessor organizations, the National Association of Securities Dealers and the member regulation and enforcement functions of the New York Stock Exchange. The two entities merged in 2007 to create FINRA.

While 80 percent of those efforts are complete, the remaining 20 percent has proven difficult to deal with, said Robert Colby, FINRA’s chief legal officer, at a recent conference for compliance professionals. Among the unfinished business: a broad proposal that would revise the industry’s licensing categories. One part would allow licensed securities professionals - everyone from supervisors to compliance officials - to keep their licenses for longer when they move to overseas posts or other units of the company that owns their brokerage.

Those employees typically lose their licenses after two years and, to get them back, must take a test to become relicensed. That requires months of preparation for the employee and up to hundreds of dollars per person for exam and registration fees for the company.

The longstanding debate over the question highlights concerns about what the industry sees as rigid licensing requirements in an increasingly global financial marketplace. Some investor advocates worry about how Wall Street would continue to supervise FINRA-licensed employees when they are working for, say, a company’s affiliated bank or insurance arm. Others are concerned that skills employees need for their licensed roles may get stale.

The plan, first considered as early as 2005 by the former member regulation arm of the NYSE, would create new FINRA licensing categories, including one that would a l low certain securities professionals to hold their licenses for up to 10 years while working for the same company in other capacities.

FINRA does have a proposal in hand, but it has yet to be submitted formally to the U.S. Securities and Exchange Commission. It includes a new category for so-called “retained associates”. The proposal has languished as FINRA and the securities industry have spent the last six years - off and on - discussing the idea with the SEC, which must approve FINRA’s rules for them to take effect, say people familiar with the matter.

New rules and rule changes can often take years to hammer out. But the licensing proposal has languished longer in the talk-about stage for far longer than anyone expected.

Among the more recent stumbling blocks: the SEC, because of the Dodd-Frank financial reform law, must now respond to rule proposals within 15 days - more quickly than in the past - and make a decision typically within 45 days. That has led groups like FINRA to instead discuss changes informally to avoid the risk of them being rejected, or subject to a special review process, simply because the SEC cannot act on time. SEC staff changes have also slowed the process, said people familiar with the matter.

“I joke that I may never see it happen in my lifetime,” said Gerald Baker, a compliance consultant in Kewadin, Michigan.


A retained associate license category would make it easier for financial companies to move employees around. It would also solve the angst and time pressures of re-taking licensing exams when a person stays at the same company.

“People hate to take tests - and they don’t want to take them again,” Colby told reporters on Wednesday during a conference for securities industry compliance professionals.

Such a change would also reduce costs for firms. They pay between $75 and $335 per test, for potentially thousands of employees affected by the current rule. In addition, licensing an employee who starts from scratch costs $85 compared to a $30 annual renewal - and that’s before a fee-hike that goes into effect in January.

The last public debate on the retained associate plan, and other possible changes to FINRA’s licensing procedures, came in 2010, when FINRA received 22 comment letters about its plan, mainly from industry groups and entities. Among the benefits the letters cited: broadening the number or licensed individuals within financial companies will allow them to keep more qualified staff on hand to draw from “in the event of changes in personnel or business requirements,” wrote a lawyer for the Securities Industry and Financial Markets Association (SIFMA), the retail brokerage industry’s Washington-based trade group.

Supporters of the plan say it would also eliminates the practice of sending employees back to the brokerage before the two-year deadline passes in a temporary “sham” capacity simply to keep their li c enses active and reset the two-year clock.

But letters to FINRA also expressed concern, including one from the North American Securities Administrators Association (NASAA), a Washington-based group of state securities regulators. A person could work for years in another position and then “transition to an investment banking or securities function without demonstrating that he or she remains qualified for the position,” wrote Melanie Senter Lubin, Maryland Securities Commissioner, in a 2010 letter on NASAA’s behalf.

Now the plan will likely rear its head again as FINRA plods through the last round of rules it needs to clean up from the 2007 merger. “It’s not that work hasn’t been done,” said Colby. “It just hasn’t been finished.” (Reporting By Suzanne Barlyn in New York; Editing by Jennifer Merritt and Andrew Hay)

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