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Regulation and Compliance > Federal Regulation > FINRA

FINRA’s Ketchum Criticizes DOL Fiduciary Plan

By Melanie Waddell

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Richard Ketchum, chairman and CEO of the Financial Industry Regulatory Authority, cited concerns Friday with the Department of Labor’s fiduciary redraft, and reiterated his stance that the Securities and Exchange Commission should lead the effort to create a uniform fiduciary standard.

Ketchum, testifying before the House Financial Services Capital Markets Subcommittee during a hearing on FINRA oversight, also said that FINRA should work with the SEC on a uniform fiduciary standard.

The self-regulator’s CEO also said that FINRA’s controversial Comprehensive Automated Risk Data System proposal, or CARDS, remains under review, and will not move forward until all the security concerns are addressed.

When questioned during his testimony about DOL moving forward with its fiduciary redraft, Ketchum stated that he believes “there should be a best interest standard and the SEC should lead it.” He added that it’s also important to “look at where we can improve disclosure and the handling of conflicts.”

Said Ketchum: “I believe the right way to move forward is to have the Commission look at the possibility of a balanced fiduciary standard across all products, and I regret the possibility of having different standards in regard to the Labor Department proposal.”

Ketchum told reporters after his testimony that FINRA has talked with DOL regarding its fiduciary redraft and that FINRA is “thinking” about sending a comment letter to DOL.

FINRA is “reviewing” DOL’s redraft, Ketchum told lawmakers, noting that while it appears Labor has made “strides in creating a more balanced rule,” he questioned the accuracy of the plan’s “description” of broker-dealers.

When asked to clarify this inaccuracy after his remarks, Ketchum stated: “I think the DOL rule is a very good-faith effort to address a complex area,” but “some of their safe harbor descriptions in the reproposal itself are very narrow from the standpoint of broker-dealer activity, and don’t really describe a broker-dealer model that I’m aware of from the standpoint of safe harbors.” Rep. Randy Hultgren, R-Ill., asked Ketchum if the “only solution” to fix investor confusion about the differences between investment advisor and broker standards of care is to impose a fiduciary standard on brokers. Hultgren is a co-sponsor of the Retail Investor Protection Act, a bill requiring the SEC to move first on a fiduciary rule before DOL and to study “alternatives” to a fiduciary standard.

Ketchum responded: “I think there are a number of ways, and I think it’s a challenge for all of us to look for ways to increase” investors’ understanding of disclosure. “I think a large part of the best interest standard should be requiring that firms manage their conflicts and provide proper due diligence.” Such a rule “should always have the balance to ensure not to impose unnecessary costs.”

As to the CARDS proposal, Ketchum said the plan “has consistently evolved” due to comments from the industry.

If FINRA does “move forward” with a CARDS proposal, “it will go back to our board and be put out as a new notice to the industry and other segments for a public comment period” before FINRA decides to file a proposed rule with the SEC, Ketchum said. “It will take a considerable amount of time.”

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