During my 40 years on Wall Street, in addition to doing two stints as a regulator and having a long career in private practice, I worked in-house at two brokerage firms -- which means that I know all too well how important it is for compliance and legal staff to read each and every missive that comes down from Wall Street's self, state, and federal regulators. In addition to supervising all the daily crap that comes across your desk, you also need to set aside time to stay current with whatever it is that the industry's regulators publish. God forbid you miss even a single one of those pearls of wisdom! If a regulator changes a rule or issues a new one but you're busy putting out fires, and, unfortunately, you don't happen to catch the all-important notice, well, if you screw up, the regulator won't cut you any slack if your excuse is that "I missed that notice."
You may have detected just a hint -- a whiff -- the barest breeze, as it were, of cynicism in my remarks. I tried but failed to hide my annoyance with the nonsense that passes these days for the regulation of Wall Street. A lot of us, both regulated and regulators, are under stress the past year. You know, there's Covid. There's the whole social distancing and remote worksites. It's tough all around. As such, I'm sorry if I come off a tad insensitive. I'm cranky. Yeah, we all are. Which is why I didn't post this snide, snarky blog on April 9th. My better angel got the better of me. On April 10th, I struggled with posting a piece, but, again, I let it go. Two days of Mr. Nice Guy. On April 11th, I started to write this article but, again, shook off the impulse. April 12th was a tough day but I fought the temptation and prevailed. Unfortunately, April 13th got the worse of me and my better angel got the crap beaten out of him. Alas, the explanation and background to this diatribe.
Imagine that you are a Wall Street compliance officer and you're trying, really giving it your all, to do your job during the last year. The pandemic has been a horror. Some of your staff took ill and that meant more work fell on your shoulders. Some of the folks that you were supervising yelled at you because they felt you were being a jackass when you complained about late reports or unanswered questions -- they all screamed at you about how they were working out of their basement or second bedroom and didn't have bandwidth or their printer was on the fritz. You understood. Still, you had a job to do and you were going to do it as best you could.
And so, against that background, FINRA Regulatory Notice 21-15 comes strolling into your life.
FINRA Regulatory Notice 21-15 is seven pages long. You got one page that's pretty much taken up by a "Summary" and what amounts to the first paragraph of a "Background & Discussion." Then you got about three pages on which FINRA discusses the point of this Notice. Then you got about three pages of "Endnotes," which comprise 21 footnotes that FINRA prefers to call endnotes, hey, to each their own. I'd really, really, really, like to be charitable in describing FINRA Regulatory Notice 21-15, but I can't. Consider the "Summary" portion of the Notice:
With the recent increase in the number of customers seeking to open
brokerage accounts and trade options, FINRA reminds members of the
requirements for determining whether to approve a customer to trade
options. Regardless of whether the account is self-directed or options are
being recommended, members must perform due diligence on the customer
and collect information about the customer to support a determination that
options trading is appropriate for the customer. In addition, FINRA reminds
members that options accounts are subject to specific supervisory reviews,
including, among others, reviewing the compatibility of options transactions
with investment objectives and with the types of transactions for which the
account was approved, and are subject to other FINRA rules that apply when
opening customer accounts, including among others, customer identification
requirements under anti-money laundering rules. FINRA also reminds
members of the margin requirements for options transactions.
Are you serious?
This is what passes for Wall Street regulation in 2021 -- a list of reminders to do what you're required to do?
This is the warm pile of steamy shit that you send out to your member firms and foist upon already beleaguered compliance staff?
No, FINRA, you really don't need to "remind" your member firms about anything. That's nonsense and more to the point, that's not your job and it's not your mandate.
Let me remind you folks at FINRA that you have promulgated and enforced any number of supervisory rules and regulations. In case you are a tad fuzzy on that concept, let me refer you to your own website page titled "Supervision" https://www.finra.org/rules-guidance/key-topics/supervision The opening line of the "Supervision" webpage states that "Three FINRA rules form a regulatory scheme addressing the supervision of firms and their associated persons." And you then go on and cite FINRA Rule 3110, 3120, and 3130. As if that wasn't enough, you toss in a separate heading "Written Supervisory Procedures Review Checklists." Oh, and in case y'all forgot, you have any number of examinations that you require folks take and pass in order to engage in any number of supervisory roles. So, c'mon, it's not like any jerk can walk in off the street and simply start working as a compliance officer or supervisor. More to the point, you FINRA regulators enter into numerous settlements and issue many hearing decisions involving firms and persons charged with supervisory lapses. No . . this is not the time and there is no pressing need to "remind" the industry of the existence of a vast regulatory scheme imposing supervision.
Despite all of the above, FINRA wasted its time and that of its members and their compliance staff with Regulatory Notice 21-15. The sheer idiocy of this Notice is made apparent in the very first sentence of the document:
With the recent increase in the number of customers seeking to open brokerage accounts and trade options, FINRA reminds members of the requirements for determining whether to approve a customer to trade options.
Submitted for you disapproval is a FINRA Regulatory Notice that does nothing more than "reminds members" that they are required to do something.
In case you missed it, the focal point of the reminder is about something that members are "required" to do. It's not something they may want to do. It's not something that they are musing about doing. It's something that's set out in many forms and iterations in FINRA's rulebook -- and the rules are mandatory (which is just another way of saying "required.")
I suspect that it took hours, many hours, for some FINRA staff to draft Regulatory Notice 21-15. Then there were the endless layers of bureaucratic review -- which means that after some poor shlub actually did the research and wrote the garbage, it went to an immediate supervisor, who then had to send it to an Assistant Director, who then sent it to a Deputy Director, who then sent it to an Assistant Deputy Director, who then sent it to a Deputy Assistant Director, who then sent it to some Associate Director, who then sent it to a Vice President, who then sent it to a Senior Vice President, who then sent it to Department Head, who sent sent it to some very important and very senior executive, who looked it over, shrugged, didn't quite understand why the thing was on his or her desk, and, you know, just so that everyone below got the impression that the top of the feeding chain was involved, made an annotation suggesting useless revisions like "tighten this up" or "change the comma to a semicolon" or "add a sub-heading."
Only because I'm a lonely guy in need of a life, I actually did a term search for the root "remind" in the Notice and found 12 iterations in the seven-page document. Being the dick that I am, let me share with you the hits from my "remind" search:
FINRA Reminds Members . . . (from the Heading)
FINRA reminds members . . . (page 1)
FINRA reminds members . . . (page 1)
FINRA also reminds members . . . (page 1)
FINRA reminds members . . . (page 1)
FINRA reminds members . . . (page 2)
FINRA also reminds members . . . (page 3)
Accordingly, members are reminded that . . . (page 4)
Further, members are reminded that . . . (page 4)
Moreover, FINRA reminds members that . . . (footnote 1, page 5)
FINRA also reminds members . . . (footnote 4, page 5)
FINRA also reminds members . . . (footnote 6, page 6)
And as you read through each and everyone of those reminders, you realize that you're being reminded about how to do your job, which you most likely don't need FINRA to do because the regulator never just reminds you to do anything -- it always ends badly with an AWC, a Complaint, or a Hearing. Under your breath, you mutter something about "gotcha regulation." Worse, the reminders that do flow from FINRA are so insipid and generic as to be useless. You're told to remember to perform supervisory reviews. Duh. You're reminded that various FINRA supervisory rules pertain to, of all things, supervision. Duh, again. You are reminded that there are supervisory requirements involving margin and options accounts, which, is like what, a newsflash?
I'm sorry but shame on FINRA. This is not regulation. This is make-work and an unnecessary imposition upon the limited time of the industry compliance men and women. All of which is exacerbated by these pandemic times.