FINRA Pushing Ahead on CAT, Rule Review: CEO Cook

At FINRA’s annual conference, execs discussed which rules are being reviewed and gave an update on exam consolidation.

There’s “still a lot more to come” in the Financial Industry Regulatory Authority’s top-to-bottom review via its FINRA360 initiative, Robert Cook, the broker-dealer self-regulator’s CEO, said Wednesday.

“It’s doing great; we’ve got a lot of accomplishments under our belt at this point,” Cook said during a question and answer session at FINRA’s annual conference in Washington. He noted the recent release of the one-year progress report, which includes 50 pages of updates.

“We’ve managed to get a lot done through engagement with our members,” Cook said, including initiatives involving transparency, FINRA operations, its organizational structure as well as its budget.

Continuing its retrospective review of rules is also on FINRA’s to-do list as well as new innovations, like the launch of FINRA’s new fintech office.

Rules that could get another look include those that involve protecting seniors, Cook said. For instance, one question that has come up recently, Cook said, “is whether brokers or reps should be able to be the beneficiaries of their clients. That’s an interesting question.”

“There’s a lot more to come,” Cook said. “What I see as the fuel that drives good changes like this is an engagement with our stakeholders … Where I see FINRA360 going is transitioning to embedding this idea of continuous improvement into our operations. We have a cycle of listening, reflecting and then acting.”

As to the Consolidated Audit Trail: “CAT is coming,” Cook warned. For the broker-dealer industry, “the first wave of testing” will be coming later this year, he said. FINRA is now the CAT processor. Cook advised attendees to check out CAT’s progress at catnmsplan.com to see the “specs that firms should be working on.”

Exams Consolidation Update

With the ongoing consolidation of FINRA’s three exam programs, Bari Havlik, FINRA’s exam chief, who sat on the panel with Cook, said that the “future state” of the exams is “one exam that focuses on different areas of the business.”

FINRA is working to pull its three exams — business conduct, financial operations and trading  — together “into one exam program that is tailored to the business models that we regulate. We’re segmenting business models,” with exams “being much more risk-based,” Havlik said. “We’ll be much more effective by organizing that way.”

The exam teams “have gotten together and even for 2019, have agreed to eliminate duplication across the three programs; they will either coordinate, collaborate or delegate to one another so that we’re not overlapping [among] the three programs.”

Responding to a question about whether FINRA will be enhancing its cybersecurity exams, Havlik responded: “I expect enhancements on all the exams. What we’re really looking to do in the cybersecurity space is to look at firms that don’t have the resources, the smaller firms, and help them understand controls that we’ve seen at other firms that are effective that they might benefit from.”

SEC Reg BI

FINRA has decided to hold off on the self-regulator’s gifts, gratuities and noncash compensation rules until Reg BI is finalized. This rule set “is part of a retrospective rule review,” Cook said. “We have done a lot of work on it and there was a draft filing with the SEC. What we’ve decided to do is see what happens with Reg BI because there’s a fair amount of overlap potentially. We’ll see what happens with Reg BI and then we’ll revisit this rule.”

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