Reuters: Regulatory News: CORRECTED-COMPLY-FINRA digs for investment adviser details

Reuters: Regulatory News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

CORRECTED-COMPLY-FINRA digs for investment adviser details May 23rd 2012, 15:11 Wed May 23, 2012 11:11am EDT By Suzanne Barlyn WASHINGTON May 22 (Reuters) - Wall Street's watchdog wants more details about brokerages' business affiliates and has a clear message for responding to its requests: Do not resist. Those are not words that many brokerages want to hear. The Financial Industry Regulatory Authority's aggressive stance on the issue may, in some cases, reach beyond the scope of FINRA's jurisdiction, compliance professionals say. The Authority is honing in on the relationships between certain retail brokerages and their related businesses, such as investment adviser units and futures brokerages, says Carlotta Romano, who heads the member regulation-sales practices unit for FINRA's Midwest region. "We are trying to look more holistically at the entities. We want to understand how they interrelate," Romano told about 1,000 attendees at FINRA's annual conference in Washington on Monday. Call it another legacy of Bernard Madoff's multi-billion dollar Ponzi scheme: retail brokerages, since around 2009, are dealing with more prodding from regulators during examinations. A 2009 report by a special committee commissioned by FINRA's board revealed that the industry-funded regulator missed opportunities to uncover the Madoff fraud. FINRA's lack of authority to examine investment advisers was a factor in missing the fraud, according to the report. The regulator has since been more daring about gathering details related to investment advisory businesses affiliated with brokerages. Just how far can FINRA go when it looks into other entities that it technically does not regulate? The question is a source of great angst for many brokerage compliance departments, according to compliance professionals. They are concerned about FINRA poking around in other business units they say are outside FINRA's regulatory jurisdiction. Not all of them are cooperating, said Romano. "It becomes a standoff - and that's just not good." There is no question that Wall Street's industry-funded regulator can examine the retail brokerage operations of its members or even request details about related businesses, including investment adviser units, in limited circumstances. There are, however, some grey areas in which FINRA's authority remains unclear, lawyers say. The issue, at least, warrants asking FINRA examiners about why they need the documents before simply handing them over, or even negotiating the types of documents to provide, they say. SHADES OF GREY FINRA's entitlement to some types of information may not be absolute, said Amy Lynch, president of Frontline Compliance, in Leesburg, Virginia. For example, details about trades for an investment adviser unit may not be relevant if they were not executed through the affiliated brokerage arm. "It could be a grey area," Lynch said. But compliance professionals should have a dialogue with FINRA examiners about the request before digging their heels in, she said. "Ask why they need it," said Lynch. If the answer is satisfactory, compliance professionals and brokerage lawyers can try to negotiate some limits on what details to provide about their affiliates, says Daniel Nathan, a lawyer for Morrison & Foerster LLP in Washington who advises brokerages. For example, brokerages can offer to describe what is in the documents and see if it is something FINRA really needs. Or they can try to narrow the timeframe of documents that FINRA requests, said Nathan, who until recently was vice president and director of regional enforcement for FINRA. FIERCE RESISTANCE Brokerages that refuse FINRA's requests could ultimately become the subject of a disciplinary proceeding by the regulator, said Brian Rubin, a securities lawyer for Sutherland Asbill & Brennan in Washington. But there could be a benefit to that litigation: it could ultimately define just how far FINRA can go in its requests for details about related businesses, Rubin told Reuters. "Unfortunately, unless it gets litigated, firms are likely to push back," he said. It may all come down to a battle of the wills, given FINRA's tough stance on records from affiliated entities: "I'm really confident that if we're asking for it, you should be giving it to us," Romano told the crowd. But some brokerage compliance officers will still be thinking: not so fast. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions