Changes to FINRA Advisory Committees

Background

In March 2017, FINRA issued a Special Notice on its engagement programs as part of FINRA360, its comprehensive review of its operations. In response to the Special Notice, FINRA received a number of comments and suggestions regarding the usefulness of some advisory committees, their membership and their effectiveness as a vehicle for dialogue between FINRA and member firms. After carefully reviewing and analyzing the comments, FINRA is taking a number of actions to address the comments and suggestions. 

Clearing Firm Advisory Committee

In December 2017, FINRA formed the Clearing Firm Advisory Committee as a forum for clearing and introducing firms to advise and make recommendations on issues arising from member firm activities relating to the clearance, carrying and settlement of securities, including issues, practices and activities affecting or relating to small member firms, such as their access to clearing services.

Capital Acquisition and Placement Broker Committee

In December 2017, FINRA formed the Capital Acquisition and Placement Broker Committee on a two-year trial basis. The committee will advise FINRA on regulatory and public policy issues arising from the activities of member firms that have elected or are considering electing to be capital acquisition brokers (CABs), as well as member firms that have not elected CAB status but have similar business models.

Proposed FINRA Regional Committees

FINRA is proposing to reorganize the District Committees into Regional Committees that mirror the regions in which FINRA’s 11 Districts are administratively grouped. The reorganization responds generally to feedback questioning the usefulness of District Committees and the membership’s general lack of interest in District Committee service. FINRA intends to submit a rule filing to the SEC proposing the reorganization.

Addressing Technology-related Issues

Some comments suggested altering the focus of FINRA’s Technology Advisory Committee (FTAC), which has served primarily as a forum for FINRA to communicate its technology-related updates to members rather than a forum to provide guidance to FINRA on its technology-related decisions. Other commenters questioned whether the roles of FTAC and the Operations Advisory Committee (OAC) overlap.

In light of the limited role of FTAC and in consideration of overlap with OAC, FINRA is retiring the FTAC. To enhance the dialogue between FINRA and member firms on important technical topics, FINRA will introduce an annual “CIO Summit.” The CIO Summit will provide a venue to discuss and receive candid feedback from member firms’ CIOs or their equivalents on important technical topics within the broker-dealer community. In addition, as part of its Innovation Outreach Initiative, FINRA has established a FinTech Industry Committee to help facilitate an ongoing dialogue around FinTech issues.

Operational Impact of Rule Changes

Several comments addressed the need for an advisory committee to focus on operational and technical issues that arise with respect to rule implementation.

Rather than establishing a new committee for the specific purpose of providing insight on operational and technology implications of rule changes, FINRA also has broadened the responsibilities and membership of the OAC to increase the focus on operational and technical issues that arise with respect to rule implementation. Since OAC members are senior operational and compliance staff from a broad spectrum of firms, they will provide FINRA with substantive input on the impact of rule proposals on the middle and back office functions of firms.

Addressing Issues of Interest to Firms

There were numerous suggestions that FINRA establish new committees to address specific topics, including annuity products, private placements and municipal advisor issues. FINRA has updated the enabling resolutions and public descriptions of certain advisory committees on its website to clarify which committees are available as forums to discuss these issues.

Committee Transparency

Numerous commenters supported publishing advisory committees’ rosters in various formats to help members and the public gain a better perspective of how individual firms are represented across multiple committees. Previously, FINRA posted committee rosters on its website for the SFAC, the National Arbitration and Mediation Committee (NAMC), the District Committees and the National Adjudicatory Council.

FINRA has published the name and firm affiliation of each advisory committee member on its website. Interested parties may contact committee members via the contact information for the individual FINRA staff committee liaisons.

Committee Participation

FINRA received a number of comments requesting greater opportunities for interested industry members to join various committees and supporting greater transparency about the committee member nomination and selection process.

In February 2018, FINRA issued a Special Notice informing firms and other interested parties about the process for filling vacancies on various FINRA advisory and ad hoc committees, as well as the National Adjudicatory Council, District/Regional Committees, the FINRA Board of Governors and the FINRA Investor Education Foundation Board of Directors. FINRA plans to enhance the information currently provided on the “Get Involved” and FINRA Committee pages on FINRA.org to include more information on the selection process for appointed seats on various committees. In addition, FINRA will widen the distribution list for election-related Notices to include each firm’s Chief Executive Officer, Chief Compliance Officer and Chief Operating Officer.

Engagement Portal

In February 2018, FINRA introduced the Engagement Portal, an online portal to enable interested persons to express interest in FINRA service in a more streamlined manner. The Portal requires interested persons to submit information through an online form. The information submitted through the Engagement Portal will be routed to the appropriate FINRA staff or department. While submitting a form is no guarantee of a future committee, NAC, FINRA Board or Foundation Board seat, FINRA staff will be able to search the submissions as vacancies arise and will consider qualified candidates for vacancies.

Actions

  • Creating a Clearing Firm Advisory Committee and Capital Acquisition and Placement Broker Committee to gain important feedback from these member-firm segments, including with respect to issues facing small firms whose customer accounts are carried at clearing firms and small firms engaged in capital raising activities.
  • Proposing to the SEC that FINRA reorganize District Committees into Regional Committees that mirror the regions in which FINRA’s 11 districts are administratively grouped. The proposal also includes eligibility and voting standards designed to result in committees that better reflect the industry in each region.
  • Broadening the Membership Committee’s composition to include mid-size firms, independent dealers and firms affiliated with insurance companies.
  • Retiring the Independent Dealer/Insurance Affiliate Committee and Regulatory Advisory Committee, as their respective purposes are being assumed by the Membership Committee.
  • Renaming the Compliance Advisory Committee and Small Firm Advisory Board as the Large Firm Advisory Committee and Small Firm Advisory Committee, respectively, to better reflect their respective purposes.
  • Proposing to the SEC that FINRA reorganize District Committees into Regional Committees that mirror the regions in which FINRA’s 11 districts are administratively grouped.
  • Retiring the FINRA Technology Advisory Committee and replacing it with annual “CIO Summits.”
  • Expanding the charter of the Operations Advisory Committee to provide a venue to obtain important insights regarding rule implementation from a people, process, and technology perspective.
  • Amending the enabling resolutions of several other advisory committees to clarify, among other things, the scope of the subject matter reviewed by the committees.
  • Updating the public descriptions of certain advisory committees on FINRA’s website to clarify which committees are available as forums for discussion of specific issues.
  • Publishing rosters of each advisory committee, listing the name and firm affiliation of each advisory committee member on the new Governance page on FINRA.org.
  • Publishing the descriptions and staff liaison contacts for ad hoc committees.
  • Issuing an annual notice about the committees and the application process for interested individuals to be considered for vacancies.
  • Introducing the Engagement Portal, an online portal to enable interested persons to express interest in FINRA service in a more streamlined manner
  • Emailing Election Notices to a broader distribution group, including each firm’s Chief Executive Officer, Chief Compliance Officer and Chief Operating Officer.