Finra has issued a widely anticipated proposal to drop the requirement for broker-dealers to supervise the independent RIA firms run by their registered reps.
In a regulatory notice released Monday, Finra asked for comment on the proposed new rule. The comment period runs until April 27.
The plan would revamp Finra’s rules on outside business activities and private securities transactions.
Notably, B-Ds would no longer have to supervise and record transactions from the outside investment advisor [IA] activities of their associated persons, the proposal says.
The current supervisory requirement “has caused significant confusion and practical challenges,” including privacy issues in obtaining account information from customers of an unaffiliated IA, Finra said.
The proposed changes would still require a rep to provide prior written notice of an outside IA, and the B-D would be required to conduct a risk assessment of the advisory firm and approve it, put conditions on it or disapprove it.
A B-D could, for example, condition approval on the custody of advisory assets with the B-D or its clearing firm.
Registered reps would have to update their B-Ds on any material change to their outside IA activity.
In other changes, the personal investments of registered reps would no longer be subject to the outside business requirements but could still be subject to other rules or firms’ own notice requirements. And brokerage firms would no longer be required to conduct a risk assessment on a non-investment-related outside business.
The rule would define investment-related as “pertaining to securities, commodities, banking, insurance, or real estate,” Finra said, which would be consistent with Form U-4 definitions.