At the opening General Session of the 40th Annual SIFMA Compliance and Legal Conference in Orlando, Florida, Mary Shapiro, CEO of FINRA, and Richard Ketchum, EVP of NYSE, reported that the recent merger of the Member Regulation function of the NYSE and NASD and its re-composition as the Financial Industry Regulatory Authority (“FINRA”) is proceeding well, meeting deadlines and generally exceeding expectations.
Ms. Shapiro described the merger process as falling into four buckets:
1) Governance (almost complete);
2) Business Processes including Enforcement, Risk Assessment and Dispute Resolution (in process);
3) Technology (expect technology harmonization to be complete by mid-2009); and
4) Rulebook (expect proposed conduct rules for comment by the Spring of 2008)
The greatest challenge presented by the merger is the creation of the FINRA rulebook. FINRA is taking the opportunity to take a fresh look at all of the rules rather than merely choosing between an existing NYSE or NASD rule. Where possible, FINRA is looking at opportunities to simplify rules and, if appropriate, to apply a principles-based outcome-oriented approach to their rule making. In a recent Information Notice, FINRA describes their rule consolidation process and discusses what rules are and are not susceptible to a more principles-based approach.
There was an interesting discussion and a lively debate about the benefits and challenges of principles-based regulation. Regulators observed that some aspects of the recent financial markets crisis seem to call out for rules-based solutions. Although there was a slight hint of regulatory skepticism of the practicality of a move toward more principles-based rules, the regulators unequivocally acknowledged that principles have an important role in understanding ethical issues, clarifying regulatory goals, and improving communication between the industry and the SRO’s. Clearly, the principles-based issue will be a hot topic for some time.
