Rumor has it--because that's all we have to go on, here, rumors--that FINRA is moving all firms to monthly FOCUS filings. Seems to me they are starting with the smallest firms. The ones that have a $5,000 minimum, keep their net capital well above that, don't hold customer funds or securities, and pose no threat whatsoever to nation's financial security. Yes, those firms that already pay an extremely disproportionate share of their earnings on compliance will now be forced to spend more money and time reporting to FINRA about numbers that make no difference to anyone. Okay, maybe some 'small' firms (150 reps or fewer) should have their books examined monthly. Maybe if they are at risk of going out of business in this terrible economy, some customer, somewhere, would be inconvenienced by having to talk directly to the clearing firm for a few weeks instead of Mr. Little BD. But for micro-firms that don't have 'customers' per se, but only introduce sophisticated investors to private investment opportunities? Or who send applications and checks to investment companies on behalf of their small town clients? Why does FINRA need to see their bank balances every month? Especially those firms that have been in business for many years and that are consistently in net capital compliance? I don't get it.
If I'm missing something, please write me and tell me. In the mean time, I'll keep thinking this is another nail in the coffin for tiny BD's, who will now have to pay their bookkeepers/accountants/FINOP's more money and who will have to spend more time responding to inane requests from coordinators every month. Some say FINRA wants to completely weed out small BD's, that it's not profitable for them to have these firms as members. Well, yes, if they keeping adding to their costs by imposing more needless regulatory scrutiny over these firms, it does become quite cost-ineffective*.
Which brings me to another question: why are they being secretive about this?? As a member of a club, aren't you entitled to know the club rules? Shouldn't all firms right now be made aware of this coming change, rather than be surprised by a sudden announcement from the District, with no specific explanation of the required change? And how about explaining the roll-out strategy: who goes first? and why? C'mon FINRA, be fair about this. Give small firms a chance to prepare their staffing/budgets for the change. And give'em a good reason for doing this (okay, maybe that's too much to ask).
*Have you, too, received correspondence from FINRA staffers written/sent out in the wee hours, including on weekends? Those folks are definitely overworked.
Get Involved
And for those of you who follow and participate, as members, in FINRA's election process, remember (from recent Election Notice): "The Financial Industry Regulatory Authority, Inc. (FINRA) will conduct its annual meeting of firms on Thursday, August 12, 2010, at 10 a.m. in the FINRA Visitors Center, 1735 K Street, NW, in Washington, DC. The purpose of the meeting is to elect individuals to fill the seven Elected Governor seats on the FINRA Board of Governors (FINRA Board) and to vote on proxy proposals submitted by a member firm." The link provided includes information on each candidate.
The proxy proposals are getting a lot of attention, including from the dissident community. Some reading and resources:
The SIPA blog on the proxy proposals
Investment News article about FINRA's recommendation to vote AGAINST the proxy proposals
Site for members to vote on the proxy electronically
Mr. or Ms. Micro Firm, maybe it's time to speak your mind. I mean, really, all this brown-nosing: where has it gotten you?
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1 comment:
Your blog is very interesting and I would like to provide you my thoughts from a FinOp’s perspective. My name is Dante Fichera (www.dantefichera.com) and I’m a CPA and currently make my living providing smaller broker dealers with FinOP and accounting services. My opinion is that $5,000 broker dealers that file quarterly FOCUS reports will not see much of a change in their FinOP costs nor in their monthly workload by filing their financials monthly with FINRA. The reality is that these broker dealers should be closing their books monthly and calculating their month end net capital by the 17th business day of each month regardless. To compile and file the FOCUS monthly will take only another hour or two per month. A formal monthly close that incorporates effective controls over financial reporting is a best business practice for all companies and especially for those regulated financial institutions that are involved with financial transactions and/or customer funds.
I would add that experienced and qualified FinOp and compliance professionals are in abundance and their pricing is very reasonable. That is partly because FINRA membership is down 9% year over year as many smaller firms shutter their doors. Many will argue that this is a result of increased compliance costs but I would argue that it is primarily due to the overall weak market conditions.
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