FINRA has devised a new annual accounting fee - required by Dodd-Frank - that will be assessed against FINRA member firms.  The fee will help fund the costs of running the Governmental Accounting Standards Board (GASB), an independent organization that establishes and improves standards of accounting and financial reporting for U.S. municipal governments. 

Comments are requested by 8/1/11.  Questions should be directed to:  Brant Brown of FINRA's Office of General Counsel - (202)728-6927.

Background and Details.   The GASB was established in 1984, and is recognized by governments, the accounting industry and the capital markets as the source for the development and publication of the generally accepted accounting principles (GAAP) for state and local governments. 

Under Dodd-Frank, the SEC has the authority to require a national securities association to establish a reasonable annual accounting support fee to adequately fund the annual budget of the GASB and to draft the rules and procedures necessary to equitably assess the GASB Accounting Support Fee on the member firms. The SEC ordered FINRA to establish and implement such a fee. 

GASB Accounting Support Fee.  Accordingly, FINRA has proposed new Section 14 - "Accounting Support Fee for Governmental Accounting Standards Board)" - under Schedule A to the FINRA By-Laws to implement the GASB Accounting Support Fee.

Assessment Methodology.   FINRA believes that assessing the fee on a transaction-based basis would be the most equitable and efficient method to assess the fee.  Consequently, under proposed Section 14, the fee would be allocated among FINRA member firms based on municipal securities transactions reported to the MSRB.

Specifically, each calendar quarter, each member firm would be required to pay an assessment to FINRA of its portion of 1/4 of the annual GASB Accounting Support Fee amount that reflects the firm’s portion of the total par value of municipal securities sales reported by FINRA members to the MSRB under MSRB Rule G-14(b)7 in the previous calendar quarter.

e.g. - if GASB’s recoverable annual budgeted expenses for a given year were $10mn, FINRA would collect $2.5 million from its member firms each quarter, and each firm’s fee would be based on the firm’s portion of municipal securities transactions  - based on the par value of reported transactions, not their price - reported by FINRA members to MSRB in the previous calendar quarter.  Firms with a quarterly assessment of less than $25 would not be charged the fee for that quarter, and any amounts originally assessed to those firms would be reallocated among the firms  with an assessment that quarter of $25 or more.

Passing Along Fees to Customers.   Because some firms may seek to pass the GASB Accounting Support Fee on to customers engaged in muni securities transactions, FINRA would publish a Regulatory Notice to advise member firms what the estimated fee rate would be.  This way, firms will have some basis on which to establish a fee, should they choose to do so. Any firms choosing to pass along the fee, however, would be reminded of the need for proper disclosure of the GASB Accounting Support Fee, including, if applicable, the fact that the fee is an estimate and that the firm ultimately may pay more or less than the fee charged to the customer.  In addition, any disclosure used by the firm cannot be misleading and must comport with FINRA rules, including just and equitable principles of trade, as well as any applicable MSRB rules. 

For complete details, go to:   [FINRA RegNote 11-28, 6/16/11]