Brokers whine when faced with new rules

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: principal to supervise “each type of business in which it engages.”

What gall

Terrible idea, wrote Robert Keenan, chief executive officer of St Bernard Financial Services Inc in Russellville, Arkansas. “Finra has absolutely no basis, nor logic, to attempt to force broker/dealers like us to supervise non-security activities of our representatives.”

“We fear regulatory overlap and redundancy” if principals get that sort of authority, wrote James Livingston, CEO of National Planning Holdings Inc, in Santa Monica, California. The company has four brokerage subsidiaries.

Securities firms are equally galled that Finra is suggesting that firms hold on to customer complaint letters for four years, up from the three now; that firms send a written report to Finra within five business days of completing an internal investigation; and that offices be inspected every three years, something that's way too costly, given “today's challenging economic environment,” in the view of the Securities Industry and Financial Markets Association, a trade group for the brokerage industry.

Untenable position

ING Advisors Network, an Atlanta-based network of independent brokers, wrote to oppose record-keeping requirements that were “in addition to Securities and Exchange Commission rules.”

Firms also groused about Finra's proposal to get tough about “outside business activities” of brokers, which can range from legitimate selling of insurance products to off-the-wall Ponzi schemes. Finra suggests that brokers get written permission from their firms before they engage in outside activities, and that brokerage firms be responsible for overseeing those activities once they approve them.

Bad idea, wrote J Peter Purcell, CEO of Purshe Kaplan Sterling Investments in Albany, New York. It would put Finra members “in the untenable position of directly or indirectly supervising” registered investment advisers who weren't Finra members, he said.

Piecemeal regulation

Finra’s critics are technically correct that it is encroaching on other regulators’ territory. In practice, though, there's a whole lot of business going on that isn't getting scrutinised when a financial employee sells products and services subject to piecemeal, uncoordinated regulation.

In Bernanke's ‘macro’-regulated financial world, rules like the ones Finra is suggesting could be just the thing to shut down the industry weasels who parse every rule looking to avoid accountability. For a real understanding of where the loopholes are, the Fed chairman might sit back with a stack of those comment letters and compare them with the firms' disciplinary records.