SFAB Email to Small Firms

March 16, 2011

Dear Small Firm Executive Representative:

In November 2010, we solicited issues and topics of concern from small FINRA firms to inform us as to what issues we should discuss at our meetings and raise with FINRA staff.  We're writing with an update on some of the topics you raised.

PCAOB Audits
Representatives of the SFAB recently met with PCAOB's Director of their new Office of Outreach and Small Business Liaison, which among other things is tasked with obtaining input from small broker-dealers on how PCAOB's program impacts them. In December 2010, the PCAOB proposed temporary interim rules governing inspections of broker-dealer audits and fees. The PCAOB plans to collect information about the broker-dealer industry during this interim period. They would like to gain insight about the potential benefits of broker-dealer inspections to the investing public, compared to the potential costs and regulatory burdens that would be imposed on different categories of accounting firms and classes of brokers.

There are several steps you can take to assist the PCAOB in their assessment process:

  • Participate in one of the securities industry association's surveys collecting information to assist the PCAOB in assessing whether classes of broker-dealers should be exempted from the PCAOB examination program. If you have not yet received a survey from one of the securities industry associations, please request the PCAOB survey by sending an email to any one of us. The survey will take less than 10 minutes to complete. Please note this survey is not sponsored or endorsed by FINRA.
  • Become familiar with the PCAOB's rule proposals and standards by visiting their broker-dealer site.
  • Read the comment letters submitted in response to the proposal.

Continuing Member Application (CMA) and New Member Application (NMA) Process
FINRA staff has formed a CMA/NMA task force with SFAB representation to evaluate and comment upon changes to the process to reduce the amount of time required to obtain approval and enhance the way documents are collected and processed. FINRA is currently piloting the new process. If your firm will be submitting a CMA and you would like to participate in the pilot, please let one of us know and we will send your name along to the appropriate FINRA staff.

Request for More Outside Business Activity Guidance
FINRA Rule 3270 (formerly Rule 3030) covering outside business activities became effective December 15, 2010. However, for registered persons who were actively engaged in an outside business activity prior to December 15, 2010, firms have until June 15, 2011, to review such pre-existing activities under the standards set forth in FINRA Rule 3270. Some firms have expressed a need for additional guidance relative to the new rule requirements. Firms can review Regulatory Notice 10-49 for discussion. FINRA also hosted a 60-minute, online webinar where industry and FINRA panelists discuss the new rule and present common practices for handling business activity that is outside the scope of the registered person's relationship with the firm.

FINRA Governance
Many of your letters mentioned improving FINRA governance and fairness in the election process. The FINRA Board of Governors recently decided it would not nominate a candidate for the one open small firm seat up for election in 2011. Instead, any eligible candidates who obtain the requisite number of petitions will be included on the ballot. You will receive more information about the upcoming election, including the petition process for inclusion on the ballot, in an Election Notice that FINRA will issue in April.

If you have new issues you would like us to consider at an upcoming SFAB meeting, please email us.

As a reminder, we are not in a position to address FINRA examination or compliance issues that may be specific to your firm alone. Also, please limit your feedback to items concerning FINRA rules or issues, as the various other regulatory authorities write, enforce and interpret their own rules, which are not under FINRA control.

We hope that this summary of our activities helps you to understand the role the SFAB fulfills in the rulemaking process. We invite you to contact any of us directly through links found on the Small Firm Web page of the FINRA website.

The Small Firm Advisory Board