What does Heidi Klum say? "You are either in or you are out." It's one or the other, and the other goes home.
In years past this distinction for me has been clear: as an "outside consultant" to securities firms, I've always been treated that way by regulators--as an unwelcome outsider. I remember a few years ago, standing at a gas station in Some City, USA, on business travel. I was on my cell with a District liaison, fighting to get information from her about a rule interpretation or some such other clarification. My purpose was to assist my BD client--not to waste the liaison's time to build my personal knowledge base. I was speaking to the subject without divulging the client's name--that would have defeated my client's purpose at the time. Anyway, this experience was similar to many I've had over the past 8 years as a consultant: I act as a go-between in order to help my BD clients better meet Finra's Rules, and I'm shut down in the process by Finra staff due to a procedure they put in place that requires, without exception, the caller to identify the member firm's name when making inquiries.
I'm happy to say that my recent interaction with some Finra staff members has strayed from this model. I've been treated to assistance by folks in various offices--such as District offices and the Office of General Counsel--without the bias I was used to confronting. A great guy in Advertising has been helpful on several occasions. A kind examiner in NYC has been generous with his time. I haven't been made to feel like a spy or a cheater when engaging in intelligent dialogue. I'm hoping this trend continues. While I understand the old mantra, 'firms can call us for information without raising red flags or risking retribution...,' I also understand that many small firms simply prefer to avoid that direct contact. They'd rather have someone like me act as an information gatherer and interpreter. In my opinion, the result is the same (and mutually desirable): BD's are well-informed and better able to meet their responsibilities. The means to that end should not be restricted. It is in the investing public's best interest to let information/guidance/interpretation flow to BD's and their consultants.
I also want to thank some Finra staff members for their good-natured, prompt and extremely helpful assistance to me in months past...I won't name them, but the folks in the online learning and waiver departments are good at what they do and pleasant to work with. Thanks to all of you!
So, Heidi, am I in or am I out? I think for the time being, I'm a little of both. And on this particular reality show, that means I'm a winner.
Monday, September 22, 2008
Thursday, September 18, 2008
The Law of Opposites
I haven't written for a while. Too much going on. I've been busy watching my son balance speed with caution at the age of 16, marvelling at my other son as he defies gravity on his unicycle, questioning the sanity of our polarized political system, and witnessing the end of the beginning of the end. These directional changes are making me nauseous. At least I have my work to keep me facing forward... I think.
A few thoughts for the day:
Finra has redesigned its website, just when I became adept at navigating the old site. Oh well, it's not about me. Anyway, it looks nice. www.finra.org
FinCEN's most recent report on suspicious activity reporting--SAR by the Numbers--includes totals for 2007. It's here: http://www.fincen.gov/news_room/rp/files/sar_by_numb_10_sec4.xls
From 2006 to 2007, there was a 58% increase in the number of SAR's filed by the securities and futures industry. One of the fastest areas of growth was in identity thefts. I imagine we'll see high growth again this year, since it's one of SEC's and Finra's priorities to make sure firms are filing SAR's, even in the face of 'potential' suspicious activity. (On that subject, please read Bill Singer's 'Cases of Note' comment on the James I. Black & Company and Jess Gove Tucker III case, August 2008 at: http://www.rrbdlaw.com/RegulatoryLinks/CASESOFNOTE/NASD/2008.htm .) Oh, and if you look closely at the report, you'll see only one state where, since 2003, there has never been a SAR filed. Where? The State of Alaska. Does that mean Sarah Palin supports money laundering by terrorists? Probably not, but I bet someone on cable TV would make that connection.
Back in May, Finra released a series of Notices related to the Rule Consolidation project. Notice 08-24 requested comment on revisions to supervision and supervisory controls rules. This is what we've been waiting for, right? The big Rule Consolidation Re-Write... the one that will bring us closer to an intelligent, principles-based regulatory structure that allows for flexibility depending on firm size and business niche?
Not so fast.
First, they're going to rewrite the rules so that there is less clarity, more cause for misinterpretation, broader authority leading to even more onerous procedural changes, and... oops, I didn't mean to be critical. I admit it must be a very difficult job: to take a HUGE rulebook governing many different business models, full of cross-references, overlapping definitions and nuanced contradictions, and attempt to improve it with a little tweaking. My take is, it's not gonna happen with edits--it will only happen with a complete re-write.
In the end, firms should be required to simply do the right thing and a well-managed regulatory body should be capable of discerning when those firms are not doing the right thing. The more minutia- and legalese-laden, arbitrary and seemingly non-applicable rules, the more likely firms are to treat compliance like a chess match: outwit the opponent by seizing on his lack of peripheral vision. That's not the way it should work.
Anyway, what IS interesting are the comment letters--go here, and choose some to read. http://www.finra.org/Industry/Regulation/Notices/2008/P038502 It's encouraging that firms are voicing opposition to things like: broadened supervisory requirements on outside business activities; requiring principals be assigned to supervise business areas of firms that do not require BD registration; duplicative supervisory sign-off on investment banking transactions; closer oversight of one-person OSJ's; and transaction review of reps' family member accounts, among others. I especially enjoyed reading the letter from ING Advisors Network, June 30. The author's comments are clear and rational. See: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/noticecomments/p038858.pdf
Now, back to the end of the beginning of the end... Did I really just say that firms should have simple, principles-based rules to follow in the way they see fit, and our regulators should be smart, motivated, united and reasonable in enforcing these new 'just do it' rules? I said that, in this market environment? What, am I nuts? Every day on the news shows all I hear is 'more regulation, more regulation, more regulation,' even from those who oppose it. I pity the team of Finra authors even more: if their mission was challenging before, it's now darned-near impossible. Whose advice do they take? Alan Greenspan said leave the short sellers alone--they're necessary and smart. Other talking heads say the short sellers are greedy and irresponsible. I hear Cox is a genius, then I hear he's an idiot. I'm not savvy enough to make up my own mind. But as a compliance consult, I do know one thing: there will be more rule changes and more rules and much, much more work to do on the part of my small BD firm clients who ALWAYS do the right thing.
In the name of opposites, I'll close quoting someone else, whose name I don't know (he was on Fresh Air): "In our country we privatize profits and socialize losses." Isn't that perfect? -er, I mean, not perfect? ....there I go again.
A few thoughts for the day:
Finra has redesigned its website, just when I became adept at navigating the old site. Oh well, it's not about me. Anyway, it looks nice. www.finra.org
FinCEN's most recent report on suspicious activity reporting--SAR by the Numbers--includes totals for 2007. It's here: http://www.fincen.gov/news_room/rp/files/sar_by_numb_10_sec4.xls
From 2006 to 2007, there was a 58% increase in the number of SAR's filed by the securities and futures industry. One of the fastest areas of growth was in identity thefts. I imagine we'll see high growth again this year, since it's one of SEC's and Finra's priorities to make sure firms are filing SAR's, even in the face of 'potential' suspicious activity. (On that subject, please read Bill Singer's 'Cases of Note' comment on the James I. Black & Company and Jess Gove Tucker III case, August 2008 at: http://www.rrbdlaw.com/RegulatoryLinks/CASESOFNOTE/NASD/2008.htm .) Oh, and if you look closely at the report, you'll see only one state where, since 2003, there has never been a SAR filed. Where? The State of Alaska. Does that mean Sarah Palin supports money laundering by terrorists? Probably not, but I bet someone on cable TV would make that connection.
Back in May, Finra released a series of Notices related to the Rule Consolidation project. Notice 08-24 requested comment on revisions to supervision and supervisory controls rules. This is what we've been waiting for, right? The big Rule Consolidation Re-Write... the one that will bring us closer to an intelligent, principles-based regulatory structure that allows for flexibility depending on firm size and business niche?
Not so fast.
First, they're going to rewrite the rules so that there is less clarity, more cause for misinterpretation, broader authority leading to even more onerous procedural changes, and... oops, I didn't mean to be critical. I admit it must be a very difficult job: to take a HUGE rulebook governing many different business models, full of cross-references, overlapping definitions and nuanced contradictions, and attempt to improve it with a little tweaking. My take is, it's not gonna happen with edits--it will only happen with a complete re-write.
In the end, firms should be required to simply do the right thing and a well-managed regulatory body should be capable of discerning when those firms are not doing the right thing. The more minutia- and legalese-laden, arbitrary and seemingly non-applicable rules, the more likely firms are to treat compliance like a chess match: outwit the opponent by seizing on his lack of peripheral vision. That's not the way it should work.
Anyway, what IS interesting are the comment letters--go here, and choose some to read. http://www.finra.org/Industry/Regulation/Notices/2008/P038502 It's encouraging that firms are voicing opposition to things like: broadened supervisory requirements on outside business activities; requiring principals be assigned to supervise business areas of firms that do not require BD registration; duplicative supervisory sign-off on investment banking transactions; closer oversight of one-person OSJ's; and transaction review of reps' family member accounts, among others. I especially enjoyed reading the letter from ING Advisors Network, June 30. The author's comments are clear and rational. See: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/noticecomments/p038858.pdf
Now, back to the end of the beginning of the end... Did I really just say that firms should have simple, principles-based rules to follow in the way they see fit, and our regulators should be smart, motivated, united and reasonable in enforcing these new 'just do it' rules? I said that, in this market environment? What, am I nuts? Every day on the news shows all I hear is 'more regulation, more regulation, more regulation,' even from those who oppose it. I pity the team of Finra authors even more: if their mission was challenging before, it's now darned-near impossible. Whose advice do they take? Alan Greenspan said leave the short sellers alone--they're necessary and smart. Other talking heads say the short sellers are greedy and irresponsible. I hear Cox is a genius, then I hear he's an idiot. I'm not savvy enough to make up my own mind. But as a compliance consult, I do know one thing: there will be more rule changes and more rules and much, much more work to do on the part of my small BD firm clients who ALWAYS do the right thing.
In the name of opposites, I'll close quoting someone else, whose name I don't know (he was on Fresh Air): "In our country we privatize profits and socialize losses." Isn't that perfect? -er, I mean, not perfect? ....there I go again.
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