Brokers whine when faced with new rules

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: Ben S Bernanke, last week, floated the notion of macro-prudential regulation. Government-speak for “an attempt by regulators to develop a more fully integrated overview of the entire financial system.”

Good luck, Federal Reserve chairman. If integration, broker oversight or speedy reporting of trouble are among the goals you're shooting for, you had better brace yourself. The lobbying locomotive known as America's financial industry was armed and already doing battle over a plan for stricter rules before you hopped that plane for the Fed's conference at Jackson Hole, Wyoming.

The Financial Industry Regulatory Authority (Finra), formed when the New York Stock Exchange and NASD merged their regulatory units in July 2007, is in the midst of rewriting the rules that govern brokerage firms. The two sets of rules used by Finra have been partially cut back, partially merged, and, in some cases, reworked into proposed new rules. It’s the proposals for new rules that have some financial bosses morphing into candidates for anger-management class.

For a flavour of the industry's reaction to the proposals, consider these choice observations made in the letters sent by banks, insurance companies, brokerage firms and their related lobbying groups this summer: Finra's proposals were "overly burdensome," "inappropriate," "unnecessarily bureaucratic," and would doom financial firms to new exposures to lawsuits.

"Finra has taken the position, which I support, that somebody's got to be responsible," for the mass of banking, insurance and securities products all being sold under one roof, says Philip M Aidikoff, a Beverly Hills, California, lawyer who represents investors. "The pushback is from folks who don't want to be regulated."

Taking offence

Among the offending suggestions Finra has floated is that brokerage firms establish a system "to supervise the activities of each associated person" in order to comply with securities laws. A regulator suggesting that brokerage employees be regulated? No wonder the firms are up in arms. The rules now refer narrowly to an obligation to supervise registered representatives and registered principals - employees who have licences granted by Finra. The feared “associated persons” category would take in others, including unlicensed partners, officers, directors and sole proprietors of brokerage firms. We wouldn't want to pester them with rules, would we?