In a little-noticed but surprising move, the Financial Industry Regulatory Authority Inc. last week withdrew a controversial proposal to revamp its supervisory rules.
The
proposal, filed with the Securities and Exchange Commission in June, would have, among other things, required supervision of nonsecurities-related businesses.
Industry commenters howled in protest about what they viewed as an illegal expansion of Finra's jurisdiction.
Finra spokeswoman Nancy Condon said the regulator planned to resubmit the proposal. She declined to comment further.
SEC spokesman John Nester also declined to comment.
“It's puzzling why they pulled the filing — it wasn't anticipated,” said Clifford Kirsch, a partner at Sutherland Asbill & Brennan LLP, who has been following the rule on behalf of a group of insurance companies.
The proposal might have become politically touchy, with discussions under way in Congress about giving Finra jurisdiction over investment advisers, he said.
The rule could have been seen “as giving Finra the ability to supervise investment advisers ahead of an [adviser self-regulatory organization] being established,” Mr. Kirsch said. “Given the legislative environment, [regulators might have thought it] best to pull the filing until there was some clarity about Finra's jurisdiction.”
Broker-dealers also worried about Finra-directed supervision over foreign exchange, commodities, insurance, banking products and real estate — businesses they said already were covered by other regulators.
The rule was first proposed in 2008. In that original version, a designated registered principal would have had to supervise each type of business not subject to broker-dealer registration. Finra removed that designated-principal requirement in its latest proposal.
