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ASA Comments on FINRA Liquidity Risk Management Proposal



WASHINGTON, DC – American Securities Association (ASA) today submitted comments regarding FINRA’s (Financial Industry Regulatory Authority) concept proposal to establish liquidity risk requirements expressing reservations with the guidance and its impact on efficiency and existing risk management guidance.


“ASA has identified certain areas in the proposal that require further consideration and thoughtful adjustments, and we hope FINRA will pay close attention to the details in our letter,” ASA stated in the letter signed by American Securities Association General Counsel & Head of Fixed Income Policy Jessica Giroux.


In particular, ASA provided FINRA with comments on the following areas of concern:

I. Industry Feedback & Collaboration. ASA emphasizes the importance of holding meetings with stakeholders, enabling a more comprehensive understanding of the potential impact of the proposal on various business models.

II. Robust Economic Analysis. FINRA should conduct a robust economic analysis that incorporates discussions with firms regarding the anticipated costs associated with implementing any future proposal.

III. Frequency of Stress Testing. ASA believes instituting a monthly stress test requirement could be too onerous for firms, causing them to be in a constant state of preparation. Instead, ASA proposes a stress test requirement to occur no more than quarterly to avoid duplicative or burdensome reporting for firms.

IV. Contingency Funding Plan Consideration. While a contingency funding plan could benefit some firms, mandating it for all without proper justification might lead to significant disruptions.

V. Clarity in Liquidity Risk Management Requirements. FINRA should be clearer in its expectations regarding how firms would calculate the necessary liquidity and measure compliance with the rule. Tailoring the program to suit the unique business models of each firm and the complexity of their operations will lead to more effective risk management.

VI. Positive Liquidity Offsets. ASA encourages FINRA to adopt a "big picture" approach and consider positive liquidity offsets.

VII. Review of Existing Guidance. ASA recommends FINRA review previous liquidity risk management practices regulatory notices to assess their relevance and effectiveness in informing the final proposal.

VIII. Overlap with Proposals & Filings. FINRA recently established a new Supplemental Liquidity Schedule (SLS) which requires certain members to file a supplement to the FOCUS Report. This is a monthly filing and as compared to the new concept proposal, it requires firms to monitor and potentially provide notifications if a liquidity event is triggered. Thus, the two filings seemingly overlap.

The letter also urged FINRA to consider how the SLS, combined with FINRA’s concept proposal and recently proposed SEC amendments to Rule 15c3-3 (the Customer Protection Rule), will affect firms that must manage all three. These three proposals – all very recent – bring into question what problem FINRA and the SEC are trying to fix. Collectively this regulatory duplication is very taxing on organizations who will certainly need to add resources, make technology enhancements, and modify processes.


The full comment letter can be found here.




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About the American Securities Association


American Securities Association, based in Washington, DC, represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.

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