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Wall Street watchdog kicks off review of rules to gauge impact, costs

Richard Ketchum, the president, chairman and CEO of the Financial Industry Regulatory Authority, testifies before the Senate Banking, Housin
Richard Ketchum, the president, chairman and CEO of the Financial Industry Regulatory Authority, testifies before the Senate Banking, Housin

By Suzanne Barlyn

The Financial Industry Regulatory Authority, Wall Street's watchdog, on Tuesday launched a review of its rules to determine whether they are effective and their costs and benefits are in line with the securities industry's expectations, according to regulatory notices.

FINRA embarked on the effort by asking Wall Street to submit comments and data about current rules on advertising and marketing, as well as those for gift-giving, according to the notices.

Among the details FINRA wants to know is whether the rules have addressed problems they were aimed at resolving and if any of them include ambiguities.

FINRA's "retrospective rule review," in the planning stages since late 2012, is an effort to determine whether the current rules are achieving their investor protection goals while not imposing unnecessary cost burdens on the industry, said Robert Colby, FINRA's chief legal officer. "Rules go out of date, or sometimes they don't work as planned," he said in an interview.

The process could lead to developing new industry rules and changing existing ones, Colby said. Some rules, however, may stay the same.

Some investor advocates worry that complaints from the industry about costs the regulations impose could lead to weakening investor protection standards.

FINRA launched a related effort in 2012 to scrutinize more deeply the potential costs and benefits of new industry rules and changes it is developing. The move came, in part, because the U.S. Securities and Exchange Commission, which must review and approve changes to FINRA's rules, told the regulator to "better support" the economic aspects of its proposals, Colby said at the time.

The SEC became more concerned about costs and benefits of industry rules when a federal court threw out an important part of the Dodd-Frank financial oversight law involving shareholders' ability to nominate corporate directors, saying the agency's economic analysis was flawed.

Those concerns appear to be trickling down to rules from self-regulatory groups that the SEC must review and approve.

Last year, FINRA hired its first chief economist, Jonathan Sokobin, to help oversee the so-called "cost benefit analysis" associated with developing new industry rules. FINRA also published a framework for its process last September.

FINRA plans to conduct the reviews of different rules on an ongoing basis, the regulator said. Factors it will consider to select the rules will include feedback from members about rules that frequently raise questions and federal laws that may override FINRA's ability to change rules, it said.

(Reporting by Suzanne Barlyn; Editing by Dan Grebler)

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