The following Letter Type A, or variations thereof, was submitted by individuals or entities.
Letter Type A:
I have major concerns with several provisions of FINRA`s proposed rule changes concerning supervision and supervisory controls. FINRA`s approach to these new regulatory requirements will have a severe impact on clients I serve as a financial advisor and lead to unintended consequences in the financial services marketplace. I strongly urge FINRA to reevaluate several aspects of the proposed rule changes, set forth below:
- One-Person OSJ Supervision: The proposed changes would require that a registered principal assigned to a one-person OSJ, defined as the `on-site principal`, cannot supervise his or her own sales activities and must be under the effective supervision and control of another appropriately registered `senior principal.` This `senior principal` would be responsible for supervising the activities of the `on-site principal` assigned to the one-person OSJ and must conduct on-site supervision of the one-person OSJ on a `regular periodic schedule.` This proposed change is unnecessary to ensure effective supervision and completely ignores the already effective supervision of `on-site principals` through technologically advanced remote supervision systems. FINRA`s proposed rule will have a disproportionately negative effect on independent financial advisors, and will undermine the overall supervisory structure employed by independent firms.
- Internal Communications: The proposed rule would require that firms include procedures for the review of internal communications to properly identify those communications that are of a subject matter that require review under FINRA, MSRB, and federal securities laws. Although FINRA has indicated that firms may employ a risk-based approach to this review, independent firms that don`t engage in research, investment banking, or other activities that raise concerns with regard to internal communications, and therefore should not be subject to this additional requirement. As a result, FINRA should exempt firms who do not engage in these activities from the new requirements.
- Covered Accounts: The proposed rule would require supervisory procedures to review transactions for associated persons and `covered accounts` to identify trades that may violate insider trading rules. FINRA`s proposed rule change will be very burdensome for firms and advisors as they will be required to alter their systems in order to capture the new categories and information expanded under the definition of `covered accounts.` In addition, FINRA has left vague the definition of `domestic partner` under the proposed rule. FINRA has aggressively touted the technological capabilities of its insider trading supervision systems, and should not to offload unnecessary compliance burdens to firms and advisors.
- Cost-Benefit Analysis: FINRA has recently hired a Chief Economist responsible for conducting cost-benefit analysis on proposed rules. FINRA has indicated that the Chief Economist will ensure that FINRA`s regulations are intelligently fashioned to protect investors and maintain market integrity without imposing needless costs and burdens on investors and the industry. However, this important rulemaking lacks any sort of cost-benefit analysis. Because of this severe shortcoming, FINRA`s proposal has not adequately assessed whether there are less burdensome alternatives, or whether the costs of implementing these changes outweigh the cost to firms, investors, and advisors. In addition, FINRA has not provided any specific performance objectives or identify other metrics to which it may later refer to assess the effectiveness of these changes.
For the above reasons, I urge FINRA to reconsider this proposal. Thank you for considering my comments.