After Finra submitted the proposed changes to the Securities and Exchange Commission, the commission received more than 2,000 comment letters on the proposal, to which Finra responded on May 1 as well as filed a partial amendment, Finra’s Associate General Counsel Matthew Vitek wrote in a letter to SEC Secretary Vanessa Countryman. The SEC then sought comment on that amendment and received seven letters, five of which supported the move, he wrote.
Meanwhile, while the American Securities Association supported the proposal in its amended form, it also urged the SEC to push Finra to issue guidance on several areas, including how it would apply to real estate, personal securities investments and the design of risk-based outside activity review programs, according to the letter.
Vitek responded by pointing to Finra’s first response letter, saying that if the proposal is approved, the industry watchdog “will consider providing additional guidance on these or other topics as appropriate.”
In addition, Cambridge Investment Research urged the commission to disapprove supplementary material related to the activity of unaffiliated RIAs, contending that Finra’s move to treat certain activity as an outside activity of a registered person and not an outside securities transaction — which was supported by the ASA as well as Cetera, LPL Financial, and theSecurities Industry and Financial Markets Association — would weaken investor protection.
Vitek wrote that the industry’s self-regulator “respectfully disagrees,” arguing that its approach “reflects an appropriate allocation of supervisory and oversight responsibility among entities and regulators with relevant expertise and authority.”
Vitek also pushed back against AlphaTrust Advisors‘ concerns about supplementary material related to supervision as it pertains to attorney-client privilege.
As far as Sifma’s request for Finra and the SEC to harmonize disclosure requirements on Form U4, Vitek wrote that the OBA rule’s scope doesn’t cover the form, but that Finra intends to work with the SEC harmonizing requirements where appropriate.
Finally, in response to the ASA’s request for the new OBA rule’s effective date to be set for at least 12 months after the SEC’s approval, Vitek wrote that Finra would “determine an effective date balancing an adequate implementation time with the objective of reducing unnecessary burdens.”
A day before Vitek’s letter to the SEC, the Public Investors Advocate Bar Association‘s President Michael Bixby submitted comments taking aim at the rule.
According to Bixby, the move would create “unneeded supervisory exemptions that will almost certainly increase the number of fraudulent schemes, Ponzi schemes, and other misconduct.”
Massachusetts’ chief securities regulator, William Galvin, in a comment letter addressing the original proposal, also slammed the “notion that any ‘burden’ imposed on registered firms relative to OBAs or PSTs under the current framework is ‘unnecessary'” as “especially troubling.”
The proposed rule’s “removal of any supervision requirements pertaining to both unaffiliated and affiliated investment advisers is the antithesis of investor protection,” Galvin added.