Financial Advisor IQ (July 10, 2019) - Self-regulator Finra’s proposal to impose additional controls on brokerages with a record of misconduct is meeting criticism from both investor advocates and industry lobbyists alike, according to news reports.
In May, the industry organization proposed a new rule that would put additional obligations on member firms with a history of employing brokers with black marks, as reported.
One of the obligations proposed was requiring such firms to hold set amounts of cash or qualified securities in a segregated account they could only withdraw from with approval from Finra.
In one hypothetical example, the regulator put the deposit as high a $5.75 million, although it also said the examples were for illustration purposes only.
Now, the Public Investors Arbitration Bar Association says there’s not enough data to determine if these amounts would be enough to cover what the firms are then ordered to pay, according to InvestmentNews.
"We have seen no data that shows the sums set aside will be sufficient to cover anticipated arbitration awards," PIABA president Christine Lazaro and vice president Samuel Edwards wrote in a comment letter sent to Finra earlier this month, according to the publication. The group wants Finra to acknowledge that the proposal is only "an incremental step toward protecting investors from high-risk firms,” InvestmentNews writes.
The North American Securities Administrators Association, meanwhile, took issue with the proposal’s alleged failure to address removed customer complaints, according to the publication. Not counting expungements “could also lead to firms encouraging — or even facilitating — expungements for their associated persons,” Michael Pieciak, Vermont financial regulation commissioner and president of NASAA, wrote in a July 1 comment letter, according to InvestmentNews.
From the other side, Finra’s proposal is being slammed by the Financial Services Institute, the publication writes. Robin Traxler, FSI senior vice president for policy and deputy general counsel at the industry group, wants “clear parameters” around what Finra can demand as far as capital requirements, he wrote in a July 1 comment letter cited by InvestmentNews. Otherwise, the proposal could end up giving Finra too much power, according to FSI, the publication writes.
Sifma, meanwhile, says it supports requiring firms with disciplinary histories to set aside money, according to InvestmentNews. But Kevin Carroll, managing director and associate general counsel at the industry group, suggests the regulator let firms “self-police and address any issues before Finra comes knocking on its door” by giving them the ability to arrive at the same calculation as the regulator, the publication writes.