By Suzanne Barlyn
Nov 16 (Reuters) - A plan meant to ease licensing
requirements for securities professionals is languishing in
For more than five years, The Financial Industry Regulatory Authority (FINRA) has been consolidating the separate rules of
its predecessor organizations, the National Association of
Securities Dealers and the member regulation and enforcement
functions of the New York Stock Exchange. The two entities
merged in 2007 to create FINRA.
While 80 percent of those efforts are complete, the
remaining 20 percent has proven difficult to deal with, said
Robert Colby, FINRA's chief legal officer, at a recent
conference for compliance professionals. Among the unfinished
business: a broad proposal that would revise the industry's
licensing categories. One part would allow licensed securities
professionals - everyone from supervisors to compliance
officials - to keep their licenses for longer when they move to
overseas posts or other units of the company that owns their
Those employees typically lose their licenses after two
years and, to get them back, must take a test to become
relicensed. That requires months of preparation for the employee
and up to hundreds of dollars per person for exam and
registration fees for the company.
The longstanding debate over the question highlights
concerns about what the industry sees as rigid licensing
requirements in an increasingly global financial marketplace.
Some investor advocates worry about how Wall Street would
continue to supervise FINRA-licensed employees when they are
working for, say, a company's affiliated bank or insurance arm.
Others are concerned that skills employees need for their
licensed roles may get stale.
The plan, first considered as early as 2005 by the former
member regulation arm of the NYSE, would create new FINRA
licensing categories, including one that would allow certain
securities professionals to hold their licenses for up to 10
years while working for the same company in other capacities.
FINRA does have a proposal in hand, but it has yet to be
submitted formally to the U.S. Securities and Exchange
Commission. It includes a new category for so-called "retained
associates". The proposal has languished as FINRA and the
securities industry have spent the last six years - off and on -
discussing the idea with the SEC, which must approve FINRA's
rules for them to take effect, say people familiar with the
New rules and rule changes can often take years to hammer
out. But the licensing proposal has languished longer in the
talk-about stage for far longer than anyone expected.
Among the more recent stumbling blocks: the SEC, because of
the Dodd-Frank financial reform law, must now respond to rule
proposals within 15 days - more quickly than in the past - and
make a decision typically within 45 days. That has led groups
like FINRA to instead discuss changes informally to avoid the
risk of them being rejected, or subject to a special review
process, simply because the SEC cannot act on time. SEC staff
changes have also slowed the process, said people familiar with
"I joke that I may never see it happen in my lifetime," said
Gerald Baker, a compliance consultant in Kewadin, Michigan.
NOT DEAD YET
A retained associate license category would make it easier
for financial companies to move employees around. It would also
solve the angst and time pressures of re-taking licensing exams
when a person stays at the same company.
"People hate to take tests - and they don't want to take
them again," Colby told reporters on Wednesday during a
conference for securities industry compliance professionals.
Such a change would also reduce costs for firms. They pay
between $75 and $335 per test, for potentially thousands of
employees affected by the current rule. In addition, licensing
an employee who starts from scratch costs $85 compared to a $30
annual renewal - and that's before a fee-hike that goes into
effect in January.
The last public debate on the retained associate plan, and
other possible changes to FINRA's licensing procedures, came in
2010, when FINRA received 22 comment letters about its plan,
mainly from industry groups and entities. Among the benefits the
letters cited: broadening the number or licensed individuals
within financial companies will allow them to keep more
qualified staff on hand to draw from "in the event of changes in
personnel or business requirements," wrote a lawyer for the
Securities Industry and Financial Markets Association (SIFMA),
the retail brokerage industry's Washington-based trade group.
Supporters of the plan say it would also eliminates the
practice of sending employees back to the brokerage before the
two-year deadline passes in a temporary "sham" capacity simply
to keep their licenses active and reset the two-year clock.
But letters to FINRA also expressed concern, including one
from the North American Securities Administrators Association
(NASAA), a Washington-based group of state securities
regulators. A person could work for years in another position
and then "transition to an investment banking or securities
function without demonstrating that he or she remains qualified
for the position," wrote Melanie Senter Lubin, Maryland
Securities Commissioner, in a 2010 letter on NASAA's behalf.
Now the plan will likely rear its head again as FINRA plods
through the last round of rules it needs to clean up from the
2007 merger. "It's not that work hasn't been done," said Colby.
"It just hasn't been finished."
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