Republicans Urge FINRA to Reject Proposals that Limit Choice for Everyday Investors
Washington,
September 7, 2022 -
Today, all Republican members of the House Financial Services Committee’s Investor Protection, Entrepreneurship, and Capital Markets Subcommittee—led by Republican Leaders Patrick McHenry (NC-10) and Bill Huizenga (MI-02)—sent a letter to Robert Cook, President and CEO of the Financial Industry Regulatory Authority (FINRA).
Subcommittee Republicans are urging FINRA against considering proposals that would limit everyday investors’ access to financial products widely available to other investors under the guise of “investor protection.”
Read the full letter to FINRA here.
Read key excerpts from the letter to FINRA below:
“Dear Mr. Cook:
“We write to express our concerns with the recent Financial Industry Regulatory Authority (‘FINRA’) Regulatory Notice 22-08, which solicits public comment on a number of questions and policy considerations regarding retail investors’ access to “complex products” and options (the ‘Reg Notice’). As you know, the Reg Notice raises potential regulatory changes that, if implemented, would raise costs and limit retail investors’ access to financial products and investment strategies that are widely available to other investors. A number of these changes could prohibit retail investors from trading in certain products, including options on registered securities.
“In particular, we are concerned that FINRA is acting as a ‘merit’ regulator by considering prohibiting or unduly restricting the sale of registered securities to specific investors, even when these investors have access to full and fair disclosure. Both FINRA and the Securities and Exchange Commission (‘SEC’) have long avoided this approach. In fact, SEC Chair Gensler recently stated that, ‘[g]oing back to the 1930s, we have a disclosure-based regime, not a merit based one.’
“In addition, we are concerned that FINRA is effectively seeking to propose a backdoor accredited investor standard on certain regulated securities that it deems unsuitable for retail customers. While such a change may be acceptable to the wealthiest customers of many FINRA member firms, it would only impede the progress of financial inclusion made possible through increased retail investor participation in our markets. In fact, a 2021 report prepared with the FINRA Investor Collaboration Foundation showed that new investors entering the market as retail investors are more ethnically and racially diverse. According to the report, 17 percent of new investors in 2020 were African American, and 15 percent were Hispanic or Latino. Any attempts to limit these investors’ access to investment opportunities would only narrow one important avenue towards their economic inclusion.
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“Decades of securities regulation demonstrates that retail investors are best protected when they have access to a variety of financial services and products with accurate disclosure, adequate educational resources, and vigorous enforcement of the law. We caution FINRA against acting as a merit regulator and limiting retail investors’ access to options trading, especially without evidence demonstrating that current regulations are inadequate.”
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