In an ongoing effort to improve the regulatory process for independent financial advisors and investors, FINRA has released a statement regarding FINRA’s Approach to Economic Impact Assessment for Proposed Rulemaking Framework.
This framework will expand the use of cost-benefit analysis during the FINRA rulemaking process in order to better understand the impact of rules and whether they are well designed to meet their intended goals. For example, FINRA may propose a new rule that requires firms or advisers to send out disclosure notices on a monthly basis. The new framework will require that FINRA conduct an analysis of the cost and benefits of the proposed rule. If they determine that the cost of sending will be $10 on average, but the issue the rule is meant to address has only ever cost each investor $5 on average, the rule may not be implemented because the costs far outweigh the intended benefits.
FINRA will also have to investigate and describe alternative approaches to new regulations that achieve the same goals but at lower costs. FINRA has also indicated that it will review newly approved rules and its existing rules and conduct cost-benefit analysis on them to determine whether they are achieving their intended goals at the lowest costs. One such rule could be the correspondence and email review regulations.
A strong economic impact analysis will ensure that FINRA’s rules going forward will be explained better, are more flexible, and take in consideration the potential direct and indirect costs. FSI has consistently encouraged FINRA to develop a robust cost-benefit analysis program for new rules and for reviewing existing rules. This will create a healthier regulatory environment by ensuring that regulators pay attention to a proposed rule’s unintended consequences while continuing to focus on investor protection. FINRA’s adoption of this economic impact assessment framework will benefit independent financial advisers by making FINRA’s rulemaking more transparent, more accountable, and more sensitive to the real-world costs and benefits of additional regulations.
FSI Executive Vice President & General Counsel David Bellaire responded to the move, saying, “FSI applauds FINRA in the development of the Approach to Economic Impact Assessment for Proposed Rulemaking Framework. Introducing cost-benefit analysis into FINRA’s rulemaking has been one of FSI’s goals. The approach outlined in the framework will help insure that new rule requirements involve efficient use of firms’ resources while still maintaining strong investor protection. It will also increase the transparency of the rule-making process.”
FINRA has also released a video interview with its Chief Economist Jonathan Sokobin where he discusses FINRA’s approach to rulemaking in greater detail and how additional cost-benefit analysis will aid investors and industry stakeholders. FSI will continue to monitor FINRA’s implementation of this framework and hold them accountable to these procedures and goals.