FINRA Watching Falling Number of BDs, CEO Cook Says

At FINRA annual, Cook talks FINRA360, odds that FINRA will seek to become advisor SRO

FINRA CEO Robert Cook. FINRA CEO Robert Cook.

Ten years since being created from the merger of the National Association of Securities Dealers and the regulatory arm of the New York Stock Exchange, FINRA has “determined that now is the appropriate time to take a hard look at ourselves,” Robert Cook, FINRA CEO, said Wednesday.

Referring to the organization’s new FINRA360 initiative, Cook, speaking at the self-regulator’s annual conference in Washington, noted that with this summer marking FINRA’s 10-year anniversary, the self-regulator is reviewing “how our operations are — or are not — meeting the current challenges facing the organization, and to make any changes required.”

Said Cook: “It is entirely natural that as a new CEO coming in from outside the organization, and with the benefit of fresh eyes, I want to work with senior management to look at how things are done and identify ways to do them better.”

During a question and answer session after his remarks, Cook also said that FINRA is watching the dwindling number of broker-dealers.

“Numbers are important to unpack,” he said. “There has been a decline in the number of firms, less of a decline in the number of registered reps,” adding that the self-regulator is attempting to understand “what’s going on in the industry — are firms just dropping away or are smaller firms wanting to associate with a larger firm? … I think the question of what is happening with small firms is an important one.”

During comments to reporters, Cook said that the shift of broker-dealer assets to the advisory side is “a trend we’re seeing. …it affects our members and it ultimately affects the scope of what we do; we’re watching that and thinking about it. …There’s a lot of brokers still there and a lot of money still on the broker side.”

He also said that, as it stands now, FINRA will not seek to become the self-regulatory organization for advisors during this Congress.

“Right now our focus is on responding to the [Securities and Exchange Commission's] request — that we make sure we’re focusing on the brokerage industry and [the SEC’s] heightened oversight of us, and them shifting the examiners to the advisor space — that’s the mission.”

However, Cook continued, “Things are changing and the industry is still evolving. Whether there may be future changes at some time [in FINRA seeking to become advisors’ SRO], I don’t know. We’re focused just on doing our job on the broker-dealer side.”

FINRA360

FINRA has formed a Project Management Office “to help map out and implement key elements” of FINRA360, he said. “Outside the scope of this office, other projects and initiatives related to FINRA360 are already being launched across the organization.”

Work associated with FINRA360 “is supervised by senior management and will be periodically reviewed by FINRA's Board of Governors,” Cook said, which “fully supports this initiative.”

While the FINRA360 initiative is a multi-year project and “will take time — a comprehensive and thoughtful review requires no less,” Cook said, FINRA is “not going to wait until every work stream is complete before we begin to implement any changes.”

He went on to list improvements that can be accomplished “more quickly,” noting recent changes to FINRA’s regulatory operations, with FINRA’s Board recently establishing “on a pilot basis” a Regulatory Operations Oversight Committee to provide more opportunities for the Board and staff to engage on FINRA’s regulatory operations, including examinations and enforcement. 

FINRA’s risk‑based examination program, launched a few years ago, “continues to advance,” he said, “with all of our examiners and firm coordinators now operating on a unified risk monitoring platform.” 

Cook said another “early initiative’ being considered under FINRA360, is to combine the enforcement groups from market and member regulation. FINRA is determining “whether those two exam programs should be combined.”

In April, FINRA also committed to “substantially increase our spending over the next two years to transform the way we bring new examiners on board and to enhance how we train examiners and coordinators,” Cook said. 

Also on tap will be the launch of a “FINRA Innovation Outreach Initiative to proactively engage with those in the securities industry seeking to develop or utilize new financial technology applications and other innovations,” Cook said, noting that an “important initial step” in this outreach initiative will be FINRA’s Blockchain Symposium in New York on July 13.

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