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ACI Participates in Effort to Overturn PCAOB Inspection over Non-Custodial Broker Dealer Audits

ACI’s Managing Partner, Jay Gettenberg, was in Washington D.C. this week for the 2018 FINRA Annual Conference. His recent involvement in the FINRA District 10 Committee, which commenced on January 1, 2018, offered Mr. Gettenberg the opportunity to assist Paige Pierce, chair of the FINRA Small Firm Advisory Board, and Robert Hackel, Chief Operating Officer of R.F. Lafferty & Co., Inc., in an effort to reduce regulation and potentially clear the path for the removal of the PCAOB’s oversight of certain qualifying broker dealer audits.   On Wednesday, May 23, 2018, Ms. Pierce, Mr. Hackel and Mr. Gettenberg were able to secure a meeting at Congress to push forward this agenda.

The proposed bill, which hopes to make it to the Congressional floor in early June, would still require broker dealers to obtain annual independent certified audits, but the PCAOB oversight and scrutiny would no longer apply for non-custodial/carrying broker dealers, provided they employ less than 150 registered representatives. This would qualify them under FINRA’s guidelines as a “small firm.”

Over the past few years, the broker dealer community has seen a significant increase in audit costs, which primarily correlates with enhanced peer review requirements, auditor fear of PCAOB inspection and sanctions, and the overall reduction in PCAOB certified audit firms, who were unable to keep current with evolving and increasingly complex standards.

Efforts made over the past few months by a small group of industry experts has resulted in the SEC and PCAOB verbally committing to remaining neutral on any proposal submitted for ratification. While they are not supporting the passing of legislation that would mitigate the requirement, they are also not opposing it, leaving the decision to the House of Representatives and the Senate to decide the fate of the bill.  At this time, the Senate has obtained both a Republican and Democratic co-sponsor and the House has obtained a Republican sponsor.  The recent efforts of Ms. Paige, Mr. Hackel, Mr. Gettenberg, and a few other leading industry professionals, has propelled the likelihood of obtaining a Democratic co-sponsor in the House, which would allow the bill to be eligible for vote, potentially leading to approval and implementation over the upcoming months.

It is currently estimated that the removal of PCAOB inspection over small broker dealer audits would result in over $60 million in annual savings for the approximately 3,000 member-firms that would qualify. The goal is to provide imminent relief to the small broker dealer community, which has significantly decreased in size over the past half-decade.

FINRA, Broker Dealers & Advisory Accounts

http://www.investmentnews.com/article/20180108/FREE/180109944/finra-warns-brokers-about-moving-clients-from-broker-to-advisory?X-IgnoreUserAgent=1

FINRA Enforcement in 2018 by Joanna Belbey at FORBES

https://www.forbes.com/sites/joannabelbey/2017/12/30/how-financial-services-firms-should-expect-vigorous-enforcement-from-finra-in-2018/?utm_content=buffera6d0c&utm_medium=social&utm_source=linkedin&utm_campaign=buffer#1e250defd003