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George Smaragdis (202) 728-8988
Nancy Condon (202) 728-8379


FINRA Issues Public Statement, Framework Regarding FINRA's Approach to Economic Impact Assessment for Proposed Rulemaking

WASHINGTON—The Financial Industry Regulatory Authority (FINRA) issued a public statement,

. FINRA's framework, authored by the Office of the Chief Economist, will help ensure that its rules are better designed to protect the investing public and maintain market integrity while minimizing unnecessary burdens. The framework described in this statement applies specifically to the prospective analysis of rules and rule changes and describes how FINRA will evaluate significant new rule proposals, including amendments to existing rules.

The Framework Regarding FINRA's Approach to Economic Impact Assessment for Proposed Rulemaking outlines the three core principles that define FINRA's approach to conducting economic impact assessments for rulemaking:

  • Consult with key stakeholders in the development of rules. Retail or institutional investors are often best situated to evaluate how they will benefit from market protections. FINRA-regulated entities best understand how a rule proposal will likely affect their businesses, from both an operational and cost perspective.
  • Provide clarity about the objectives and potential impacts of rule proposals and alternatives considered. Proposed rule changes should be transparent about why FINRA seeks to establish or amend a rule, how the specific rule proposal addresses a regulatory need better than reasonable alternatives, and what evidence or assumptions are relied upon in reaching that judgment. Rule filings should provide insight into the evaluation of the economic impacts to help the public understand why FINRA reached its position.
  • Obtain supporting evidence where practicable. Economic impact assessments seek to identify and anticipate how markets and market participants will alter their behavior in response to a new rule. To do this, it is important to assess who a proposal impacts (e.g., investors, brokers, others), what participants will be required to do to implement a rule (e.g., firms developing a new system to capture and deliver required disclosures), the costs and benefits of new compliance activities, and how behaviors will change (e.g., investors will be better advised of a conflict and will take more care in making decisions).

"The framework we have outlined increases transparency around FINRA's analysis of the need for and potential consequences of proposed rules. It allows us to expand on FINRA's traditional approach to rulemaking by ensuring that we more formally, rigorously, and consistently develop rules that are effective and efficient," said FINRA's Chief Economist Jonathan Sokobin.

FINRA will make a determination early in the rule development process regarding the extent of the economic impact analysis required, and early initiatives will focus on complex rules or rules where economic impacts are likely to be significant.

FINRA expects that in significant future rule proposals, FINRA will address, as appropriate, the following questions.

  • What is the problem, issue or practice that necessitates regulatory action?
  • What is the objective of the regulatory action?
  • What is the baseline against which to measure the likely economic consequences of the proposed regulatory action?
  • What is the proposed solution and how does it address the problem?
  • What are the reasonable alternative options available?
  • What are the anticipated economic impacts associated with the options, including the costs and benefits and distributional impacts, in particular as to efficiency, competition and capital formation?

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit