FINRA’s Board of Governors met on May 6-7 to consider an array of financial, regulatory and enforcement reports and issues. Prior to this regular meeting of the Board, the published meeting agenda indicated that at least one of the items under consideration concerned FINRA’s arbitration arm.
That item, which we summarized in more detail in SAA 2019-18, was assigned for review to the Board's Regulatory Policy Committee. In a follow-up email memo to FINRA Member Firms, dated May 14, 2019, FINRA President and CEO Robert W. Cook reported that the Committee had questions about the proposal to modify the Discovery Guide to require, at least presumptively, the production of insurance information about liability coverage. Questions also were posed about the second proposal -- one dealing with outside activities requirements -- and, in both cases, the Committee tabled the proposed rulemaking pending reconsideration at a future Board meeting. In the meantime, the staff was directed “to gather more information.” The Cook memo directs readers to a May 2019 Board Report video “for more information.”
Board Report Video
The video, which featured Board Member Elisse Walter, a Public Governor and Chair of the Regulatory Policy Committee, began with the two proposals. She reiterated what Mr. Cook wrote, adding only the promise that “those items will come up again.” Mr. Cook reviewed the other action items, starting with news that a draft of the 2018 Annual Financial Report is now in the hands of the Board’s Audit Committee. Mr. Cook believes public issuance of the Report “this summer” will enhance transparency and encourage engagement by “stakeholders” in the FINRA process. FINRA has previously posted information about the use of fines collected from members and associated persons in 2018 (SAA 2019-17) and issued a 2019 budget summary (SAA 2019-13). The Board also received updates on FINRA’s regulatory operations from EVP, Enforcement, Susan Schroeder. Included in that summary was a statement briefing the Board on FINRA policy regarding regulatory credits for firms that self-report and provide “extraordinary cooperation” during regulatory inquiries. This policy is planned, upon finalization, for announcement in a future Regulatory Notice. Small Firm Governor Paige Peirce (Lanier Capital Corporation) added commentary about the need for clarification in this area.
News Release - May Meeting
Go to FINRA’s Newsroom, if you want to follow links that amplify on these topics. There, we found a “News Release,” dated May 14, that, again, summarized the two rule-making proposals and offered links to the Discovery Guide, to the changes to FINRA Rules 3270 and 3280 that were proposed for public discussion in February 2018 via Regulatory Notice 18-08. We reported upon RN 18-08 in SAA 2018-11, conveying that the proposal responded to cries of unnecessary reporting and other burdens posed by “stakeholders” regarding the current rules on outside activities and private securities transactions (OBAs and PSTs).
(ed: *The comment period on the RN 18-08 proposals drew a vigorous response -- more than 50 comment letters were submitted before the comment period ended in late April 2018. One of the comment letters was submitted by Paige Pierce, evidently in her individual capacity. **We view the OBA-PST proposal as having a significant arbitration aspect to it -- that is, its potential for introducing further fragmentation in FINRA’s arbitral jurisdiction. Customer-client disputes with brokers who are dually registered and with hybrid RIAs already face jurisdictional barriers. We wonder whether the Regulatory Policy Committee has focused on this investor protection angle in reviewing the proposal. PIABA was one of the 18-08 commenters and hit some of the salient points in its critique of the proposal.) (SAC Ref. No. 2019-19-01)
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