When the Financial Industry Regulatory Authority (FINRA) considers adopting a rule — or amending an existing one — that will govern an aspect of the relationship between brokers and investors or their employers, it solicits comments from practitioners and the public.
As part of its mission of serving regular investors, Georgia State Law’s Investor Advocacy Clinic regularly evaluates FINRA rule proposals and submits comments. Clinic students primarily draft the comments under the direction of Nicole G. Iannarone, assistant clinical professor and clinic director. The comments, which are publicly available in the Federal Register, help FINRA assess whether adopting the new rule is in the best interests of its members and the investing public.
“The IAC submits comments on rules that will affect our clients, who are often retirees on fixed incomes,” Iannarone said. “The comment letter procedure allows the clinic to speak directly to the organization whose leaders make decisions that can impact the clients we serve. In the process, students to develop a deeper understanding of how regulations are developed.”
Clinic intern Michael Williford (J.D. ’17) drafted a comment on FINRA SR-2016-029, a proposal requiring all parties represented in a FINRA proceeding to use FINRA’s electronic Party Portal to “file initial statements of claim and to file and serve pleadings and other documents on FINRA or any other party” and “to file and serve correspondence relating to discovery requests” as opposed to filing paper copies.
The comment praised FINRA for taking steps to increase access and efficiency and identified two potential problems—outlining recommendations to correct each. The clinic noted that claimants in smaller cases may not be able to remit payment for filing fees electronically and the requirement may result in lawyers turning down smaller cases—both resulting in more claimants attempting to file cases without representation or in valid claims going unfiled.
In the comment, the clinic proposed that proceedings where the claimant seeks damages less than $100,000 should be exempted from the electronic payment provisions. The clinic also identified concerns that the proposal did not require parties to protect the personal confidential information of claimants in simplified arbitration proceedings.
While parties in proceedings requesting more than $50,000 in damages must redact information that identity thieves could use, the redaction requirement had not been extended to “small” claims. The clinic reiterated its earlier comments on the redaction rule and noted the importance of redacting personal confidential information if a proceeding is filed electronically.
“As a result of our comment, I and other clinic students were fortunate enough to have a face-to-face meeting with some of the FINRA leaders,” Williford said. “They were receptive to our input and gracious. It was a rare opportunity, as a law student, to interact directly with policy makers and discuss an issue that could have real-world effects on the IAC’s clients.”
Ultimately FINRA decided to adopt the rule as originally proposed, but Williford considered the overall comment process rewarding.
“We weren’t successful convincing FINRA to adopt our proposals, but the comment process is about more than that,” he said. “Advocating for IAC clients through the comment process helps shape policy over the long run.
“Even if FINRA doesn’t make changes based on a particular comment letter, drafting the letters helps keep advocates for small investors in FINRA’s sights, so they are never too far from policy-makers minds,” Williford said.
Iannarone agrees that the comment letters help the clinic fulfill its mission of serving investors who otherwise do not have a voice.
“Because we serve those who do not have access to lawyers for their legal issues, participating in the comment letter process is especially important,” Iannarone said. “We ensure that the impact on small investors is considered in the rulemaking process because financial regulations affect them, often more so than industry or larger investors who are able to employ lawyers to represent their interests.”
In addition to comment letters, Williford considers his overall experience with the clinic incredibly worthwhile.
“The clinic is work. It’s not a free ride, but it is also incredibly rewarding to work with real clients who have real problems,” Williford said. “The IAC serves an important function by representing clients who have arguably been duped out of their retirement savings by less than scrupulous brokers.
“These are cases that are generally too small for the average practitioner to take on because the numbers just don’t add up,” Williford said. “Without the IAC, those investors would not have a voice in legal proceedings. That’s important.”
The IAC has filed dozens of comment letters, all of which are available on the Georgia State Law Center for Clinical Education blog.