The Dodd-Frank Act required GAO to study SEC’s oversight of national securities associations registered under section 15A of the Securities Exchange Act of 1934, a provision which applies only to Financial Industry Regulatory Authority (FINRA). This report examines (1) how SEC has conducted oversight of FINRA, including FINRA rule proposals and the effectiveness of its rules, and (2) how SEC plans to enhance its oversight of FINRA.
GAO recommended that the SEC should encourage FINRA to conduct retrospective reviews of its rules and establish a process for examining FINRA’s reviews. GAO and others have reported on the usefulness of retrospective reviews as they allow agencies to assess the effectiveness of their rules. By not conducting these reviews, FINRA may be missing an opportunity to systematically assess whether its rules are achieving their intended purpose and take appropriate action, such as maintaining rules that are effective and modifying or repealing rules that are ineffective or burdensome. Further, by not reviewing what steps FINRA takes in reviewing its existing rules, SEC may not capture sufficient information to form an opinion about FINRA’s efforts to review its rules.
Read the full GAO report.