July 2017 Board Update

July 18, 2017

Dear Executive Representative:

The FINRA Board of Governors met this week, and I am writing to share with you several updates from our discussions. 

First, the Board took action on two rulemaking items involving FINRA’s Membership Application Program rules as they relate to broker conduct and unpaid arbitration awards. These are two important issues FINRA has dedicated considerable effort to addressing, and the rulemaking actions outlined below and in the Board video report represent our continuing efforts to focus on them.

The Board also held preliminary discussions on the comments and suggestions we received from our Special Notice on Engagement that was published in March. To those of you who submitted feedback—thank you. Your involvement is a key aspect of our FINRA360 initiative, in which we are looking at our processes to ensure we are operating as an efficient and effective self-regulatory organization. We are currently developing action plans around the suggestions, some of which can be implemented by FINRA management and some of which will require Board action and rulemaking changes.

I also have Board-related news to share with you. The Board made a number of appointments to the Board, which are included below. Their terms begin August 22. One large firm seat and one small firm seat are currently available for election, and proxies will be mailed to eligible firms this Friday, July 21.

In addition, William Heyman, Vice Chairman and Chief Investment Officer of The Travelers Companies, officially takes over as Chairman of our Board today. Bill previously served on the Board from 2004 until late last year, and I look forward to working with him.

Of course, that means Jack Brennan is leaving FINRA’s Board after 15 years of dedicated service, the last one as our Chairman. As a fairly new CEO of FINRA, I have appreciated his guidance and support over the past year—and the organization owes him a great debt of gratitude for his leadership during the period before I arrived, including throughout the consolidation of NASD and NYSE Regulation that gave rise to FINRA. Jack will be greatly missed.

I look forward to continuing to update you on Board activities in the future.

Sincerely,

Robert W. Cook
President and CEO

Board Appointments

• Governor Kathleen A. Murphy, President of Fidelity Personal Investing, was appointed to succeed Governor John. J. Brennan as the Investment Company Affiliate on the Board.
• Amy L. Webber, President of Cambridge Investment Research, Inc., was appointed to succeed Governor Murphy as the Independent Dealer/Insurance Affiliate Governor.

In addition, the following four governors were appointed to second terms that begin as of the annual meeting.

Rulemaking Items Discussed at the July 2017 Board Meeting

Broker Conduct
The Board authorized FINRA to publish a Regulatory Notice soliciting comment on proposed amendments to FINRA’s Membership Application Program rules that would require a member firm to seek a materiality consultation with FINRA if the member is not otherwise required to file a continuing membership application and: (1) a broker with certain specified risk events seeks to become an owner, control person or principal of the member; or (2) the member seeks to add a broker with certain specified risk events to the firm. The proposal would provide that the safe harbor in IM-1011-1 for business expansions would not be available for any member under these circumstances. FINRA staff would review the submission and determine whether the member is required to file a continuing membership application in accordance with Rule 1017.

Unpaid Arbitration Awards
The Board authorized FINRA to publish a Regulatory Notice soliciting comment on proposed amendments to FINRA’s Membership Application Program rules to provide FINRA staff with rule-based authority to presumptively deny a new membership application if the applicant or its associated persons are subject to pending arbitration claims. In addition, the proposed amendments would require a member firm to seek a materiality consultation with FINRA if the member is not otherwise required to file a continuing membership application and the member is seeking to effect a business expansion or asset transfer and the member or an associated person has a substantial level of pending arbitration claims, an unpaid arbitration award or an unpaid settlement related to an arbitration. The proposal would provide that the safe harbor in IM-1011-1 for business expansions would not be available for any member under these circumstances. FINRA staff would review the submission and determine whether the member is required to file a continuing membership application in accordance with Rule 1017.