FINRA Looks To Ease Burden On Small Firms

WASHINGTON — A top official with FINRA's regulatory division says she appreciates the compliance challenges that firms — particularly small ones — are facing, and looks ahead to a more flexible oversight regime that will be less of a drain on a practice's resources.

Susan Axelrod, FINRA's executive vice president of regulatory operations, recently expressed sympathy for small brokerage shops struggling to navigate the rules that FINRA has been pushing out, while looking ahead to new regulations coming down the road, such as the CARDS data-collection program.

"I do agree the regulatory environment is challenging at the current time," Axelrod said in a panel discussion at FINRA's annual conference here last week.

"I think a lot of firms feel the regulatory pressure," she added. "It's a robust market for compliance professionals, I can tell you that."

Other panelists acknowledged that FINRA has been making an effort to address the costs of compliance, but urged the self-regulatory organization to do more.

Robert Muh, CEO of Sutter Securities, noted the declining number of registered firms under FINRA's purview — around 4,400, down from more than 5,000 about a decade ago — and appealed for a regulatory "exception for exceptionally small firms," say those with staffs of around eight to 10 people. Without such relief, Muh argued, FINRA will effectively regulate small players out of business, and "we'll lose another thousand firms."

'SCALE BACK' EXAMS

In a nod to those concerns, FINRA is piloting a program for limited-purpose broker-dealers and other small firms that would ease back on intensive practice exams and move toward more ongoing, but lighter-touch engagement between regulators and practices.

That program aims to reorient FINRA's approach around "less heavy oversight and more knowledge and understanding of what's going on day-to-day with these firms," Axelrod explained.

"We are going to try and scale back the examination part of our regulatory oversight and be more surveillance-focused," she said.

Axelrod points to other efforts underway at FINRA to ease the regulatory challenges, including the retrospective rule review the organization recently announced, a program to take a second look at significant rulemakings to determine if they are effecting meaningful investor protections without creating an undue burden on member firms.

BETTER COORDINATION

Axelrod also noted that FINRA and other regulators have been taking steps to better coordinate their activities. Officials with the SRO now share their exam schedules with their counterparts at the SEC in an effort to compare notes and avoid overlap. So if FINRA learns that a firm slated for an exam was recently visited by the SEC, it will likely postpone that review and move onto another practice.

Similarly, FINRA staffers now have quarterly phone calls with securities regulators in each state to avoid overlaps in exams of smaller, state-registered firms, Axelrod said.

"Coordination is something we used to hear about all the time: 'You guys don't coordinate. You don't coordinate — you're tripping over each other,'" she said. "We don't hear that as much now, so I think we've taken steps to really get that aspect of our work much better."