SFAB Update

February 9, 2009

 

Dear Small Firm Member:

 

FINRA created the Small Firm Advisory Board (SFAB) in 1998 to advise FINRA's Board of Governors on the impact of proposed regulatory initiatives on small firms. There are now five elected members of the SFAB (one from each region) and five members appointed by FINRA. In addition, the three small firm representatives on the Board of Governors serve as ex-officio members of the SFAB. The SFAB meets five times a year with senior members of the FINRA staff at FINRA's offices in Washington. The SFAB plans to update you periodically on our activities and get your input on small firm issues through the small firm page on the FINRA web site, http://www.finra.org/Industry/smallfirms.

 

At the SFAB's January 27, 2009 meeting our agenda highlighted a discussion of the recent SEC requirement for non-public broker dealers to use a Public Company Accounting Oversight Board (PCAOB) registered accounting firm. In December the SEC decided not to renew the non-public firm exemption issued in 2003 from the requirement to have an annual audit conducted by a PCAOB registered auditor for fiscal years ending after December 31, 2008. The SFAB has been in conversations with FINRA since we learned of this decision. Please note that this was not a FINRA decision but that of the SEC. In light of the Madoff matter, it is unlikely that small firms will be able to get a reversal of this decision in the near term. In fact, we have now become aware that Congressman Paul Kanjorski, who is the chairman of the House Capital Markets Subcommittee, is planning to introduce legislation that would effectively permit the PCAOB to have jurisdiction over the audits of all broker-dealers. The impact of such legislation could be quite significant.

 

FINRA had been working with the SEC to publish a series of FAQs to address questions raised by non-PCAOB registered accounting firms. In light of Congressman Kanjorski's planned legislation, we are not currently aware of what the SEC's plans are in this regard.

 

Turning to another important topic, the NYSE and NASD regulations are being merged and updated into one set of FINRA rules. We have spent considerable time commenting on the new regulations that will be part of the rulebook consolidation, and our efforts will continue. Members of the SFAB have been very outspoken when we thought that a rule proposal would place an undue burden on small firms and we have often presented alternative approaches. We can assure you that FINRA "listens" to our comments and, more importantly, our views are presented in writing to the FINRA Board of Governors.

 

We also met in January with senior staff at FINRA Market Regulation to open a dialogue on updating members on the status of formal inquiries. We hope to report back to the membership with additional information in the near future.

 

As a final matter, there are many situations where a small firm qualifies for a "limited size and resource" exception to an existing rule or procedure. The SFAB will continue to advocate that this important exception be expanded in all appropriate situations.

 

We have already raised a number of important issues for FINRA and SEC consideration, ranging from TRACE to the procedures related to firm examinations. We welcome input from all small firm members on any issue covered in this letter, as well as any other issues important to you. Please feel free to contact any of us on the SFAB at our email addresses below.

 

Sincerely,

 

Robert Muh (Chair)
Deborah Castiglioni
John Fitzgerald
James Jones
Carolyn May
Neal Nakagiri
Daniel Roberts
Lisa Roth
Raymond Smith
Howard Spindel
Mari Buechner (Ex-Officio)
Donald Steel
(Ex-Officio)
Duncan Williams (Ex-Officio)