FINRA’s Robert Cook flags long list of rule changes

Kayte Toczylowski, VP of Member Relations and Education, put the questions that she is hearing most frequently from members to Robert Cook, President and CEO, FINRA, at the regulator’s annual conference in Washington DC.

KT: Right now, it is all things remote inspection, branch office definition and remote work – where is the refiling on this rule?

RC: We have been looking at the rules and wanting to update them to account for the new workplace post pandemic. This would cover: residential supervisory capability and remote branch inspections (which is something that FINRA wants to pilot). However there was a clock ticking on the SEC’s time window to be able to review these changes and the clock ran out.

FINRA had had a blend of support and concern with its proposals – this meant that it withdrew them and then refiled which shows the optimism felt that the SEC should be able to approve them, though there is no guarantee.

What other rulemaking or proposals are on the horizon?

Well, people might be scared to know there is a long list! Here are some that are top of mind for the next 12 months:

  • Rules related to capital formation and how do we update this and promote it while protecting the investor.
  • Transparency around trading (working with Treasury and SEC) especially on Treasury transactions.
  • Shortening the reporting time in TRACE from 15 minutes to potentially one minute (working with MSRB).
  • Short sales transparency so that it is more frequent and granular – aiming to go from publishing this data every two weeks to at least every week.
  • Liquidity concept release – encouraging principles for liquidity management and stress testing.
  • Continuing a sweep on crypto communications.
  • Rules related to outside business activity (OBA) – an update that focuses on what really needs to be reported.
  • Capital acquisition rules.
  • Projections for advisers.

Rumor has it that FINRA’s HQ is changing – is this true?

We are moving! I like going into an office that is now a working museum of the 1990s but we must move with the times and accommodate modern practice that enables collaboration. We will be seeing a shrinking footprint here in DC as well as in Rockville which will also save costs.

Can you give us some insight into the 2022 FINRA Annual Report that is due out shortly?

This is a report that each year offers financial transparency and a budget and gives insight into areas like how we are spending money raised from fines levied. It should be released in early June. FINRA made a net loss in 2022 but this is offset by the almost equal net gain made in 2021. The reserves portfolio was hit by bad performance as were many in the last year of trading. This accounts for close to 75% of the loss. FINRA also plans to spend down its reserves so this is something that might become a regular theme.

Funding of the Consolidated Audit Trail will result in fee increases for members but this is something that is prescribed by the SEC and over which FINRA has no control. None of this fee increase will be going to funding FINRA’s operations.

Last question – where is FINRA on digital assets and crypto?

We are trying to gear up to accommodate it but the regulatory structure required for it is not in our hands. We are working on developing capacity to account for OBA for FINRA reps, as well as private placement activity and also new members. We know we must develop these capabilities and we have created our own crypto hub at FINRA as well as blockchain lab so we are well placed for what lies ahead.