SIFMA Submits Comments to SEC on Two FINRA Proposals (with Lofchie Comment)

SIFMA provided comments to the SEC about two FINRA-proposed rule changes regarding (i) payments to unregistered persons and (ii) background checks.

In the first letter, SIFMA stated that it has long been a supporter of enhanced clarity in the rules applicable to dealings with unregistered persons. According to SIFMA, however, some aspects of the proposal would benefit from additional specificity. SIFMA also noted that certain interpretive challenges remain with respect to the foreign finders exception "for which further guidance is necessary to enact a final rule that is efficient and effective in accomplishing the stated policy goals."

In the second letter, SIFMA commented on FINRA's proposal to incorporate NASD Rule 3010(e) ("Supervision - Qualifications Investigated") on background investigations into new FINRA Rule 3110(e) ("Responsibility of Member to Investigate Applicants for Registration"). SIFMA stated that the change would "augment" the firms' current obligations under the NASD and NYSE rules. SIFMA requested, however, that FINRA provide further clarification on proposed Rule 3110(e) to require each member to "establish and implement written procedures reasonably designed to verify the accuracy and completeness of the information contained in an applicant's Form U4 no later than 30 calendar days after the form is filed with FINRA."

Lofchie Comment: Non-U.S. individuals or entities who deal with non-U.S. customers, and who do so in their own name rather than under the direct control of a U.S. broker-dealer, should not be subject to the SEC's regulation of their commission payments. These individuals or entities are properly regulated by the jurisdictions in which they and their customers are located. From a conceptual standpoint, there is no way to distinguish between cases in which a U.S. broker-dealer shares commissions with a major European dealer, a small European dealer, a boutique European dealer or a single European individual, so long as each operates wholly outside the United States and is independently managed.

See: SIFMA Comment Letter Regarding Payments to Unregistered Persons Proposal; SIFMA Comment Letter Regarding FINRA Background Check Proposal. Related news: FINRA Proposes Rule Change to Adopt Rules 0190 and 2040 and Amend Rule 8311 (Fed. Reg.) (October 1, 2014); FINRA-Proposed Rule to Incorporate NASD Rule Regarding Background Investigations into Rulebook (Fed. Reg.) (October 3, 2014).