Wall Street watchdog scraps controversial supervision plan

Thu Jun 27, 2013 7:04pm EDT
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By Suzanne Barlyn

(Reuters) - Wall Street's industry-funded watchdog has scrapped a controversial plan that would have required brokerages to supervise business lines that are not related to the securities industry, according to a recent regulatory filing.

The Financial Industry Regulatory Authority, in a long-awaited proposal that would streamline rules for how brokerages should supervise themselves, dropped the idea it had initially proposed to the U.S. Securities and Exchange Commission in 2011.

FINRA, as part of a sweeping supervision proposal it submitted to the SEC on June 21, said it was the "best course" to eliminate the plan. However, other FINRA rules would still apply to business activities by firms and their brokers that are unrelated to the brokerage industry, the group said.

The regulator oversees 4,250 brokerages and about 630,000 brokers.

Brokerages, in numerous letters, had balked at the original plan.

It would have forced them to become deeply involved in monitoring other types of investment businesses that their brokers may have engaged in outside of their firms.

For example, many brokers who are licensed through independent broker dealers, such as LPL Financial Holdings Inc, (LPLA.O: Quote) also run registered investment advisory firms, which are not part of the brokerage. Those businesses are regulated by the SEC instead of FINRA.

The plan could have also tied brokerages to moonlighting activities by brokers, such as selling insurance or being landlord, critics said.   Continued...