By Lynn M. Mckeel, Fall 2017 IAC Student Intern
FINRA made the news earlier this month when CEO Robert Cook appeared during a House Subcommittee Hearing. Pertinent to the meeting was the organization’s transparency and financial affairs. Lawmakers such as Republican Tom Emmer from Minnesota and Democrat Brad Sherman from California took the opportunity to question Cook on FINRA’s practice of retaining fine proceeds rather than giving that money to investors harmed by broker misconduct. Mentioned during the proceedings were FINRA’s $1.6 billion reserve fund, executive pay, and inquiries on how fine money was spent.
The questioning stems from FINRA’s ability to straddle the line between government agency and private self-regulating corporation. Lawmakers suggest that because FINRA acts as a regulatory agency they should have the same transparent obligations as other government organizations. Cook responded by agreeing that transparency and detailed reports are a beneficial but reiterates that FINRA is not a government organization, rather an industry funded, self-regulator whose goals are to protect investors.
Rep. Emmer was quoted as saying, “How do you get more transparency?” “[FINRA] looks more like a government agency with a heavy hand.”
Cook appeared to cooperate with the line of questioning. Acknowledging the committee’s concerns, Cook stated, “Transparency and disclosure have certainly been among the comments that we’ve gotten. We’re going through a process where we’re organizing the comments to understand how we can best respond to them. There are areas where people have asked for more disclosure. Most of the member firms I’ve talked to, this is not the No. 1 issue. They are more focused on how our exam program works.”
FINRA has over 3,700 registered broker-dealers and 631,000 brokers nationwide. Outside entities, such as InvestmentNews, estimate that FINRA generates hundreds of millions of dollars a year in revenue through membership fees and fines. Some believe that because of FINRA’s wide-reaching power to discipline virtually any broker or broker-dealer in the country, they should be more transparent with their expenditures including salaries and costs associated with lobbying activities. Others suggest that if FINRA wants to maintain its autonomy as a private organization, they should take steps to disband what some consider to be a monopoly over the industry.