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FINRA to Get Back to Basic ‘Blocking and Tackling,’ New CEO Says

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Robert Cook became president and CEO of the Financial Industry Regulatory Authority last August, succeeding the longtime FINRA leader Richard Ketchum, and since then he’s been conducting a “listening tour” among the self-regulator’s various stakeholders. On Monday afternoon in San Francisco, Cook said one thing he’s heard is that “FINRA has been tin-eared over the years,” that it hasn’t been “listening well to its stakeholders; I hope to change that.”

In an onstage interview that was part of the opening general session at the Financial Services Institute’s OneVoice 2017 conference, Cook told FSI President and CEO Dale Brown that during his first 100 days on the job he’s also gotten “good feedback on things FINRA is doing well,” notably its risk-based exam approach, though he’s also heard from its regulated firms that they’d prefer to receive feedback on what FINRA examiners have learned from their visits to other firms.

When it comes to FINRA’s exam priorities — the formal listing of which was released recently — Cook said “let’s focus on core supervisory and compliance issues,” which he called regulatory “blocking and tackling,” characterizing the approach as not adding new areas to focus on during exams but rather “modifications” of existing exam focuses.

On cybersecurity, Cook said it was important for examiners to “focus on the scope, the scale of the business” and its cyber policies, noting that “what works for one firm might not work for another.” On the problem of so-called “recidivist” brokers, Cook took pains to argue that “the vast majority of registered reps work very hard to serve their clients’ interests,” but that those reps and their broker-dealers also “have a common interest” on “getting the bad apples out” of the industry. The role for broker-dealers, he suggested, was to perform deep due diligence when onboarding a new rep while promising that FINRA will come down hard on “clusters of brokers who’ve had problems in the past.”

On best execution, Cook said one area ripe for improvement is in the fixed-income market, and called on firms to use “developing tools that can be brought to bear” on ensuring best execution on bonds.

Responding to a question from the audience of independent BD executives who populate the OneVoice conference, Cook admitted that on his listening tour he’s heard the criticism that too often “FINRA does rulemaking by enforcement.” Cook said that perception is “troubling,” and pledged outright that “we shouldn’t be doing that.” Answering a question from Brown about the relatively light oversight of registered investment advisors — long a concern of the FSI — Cook responded that “FINRA doesn’t have jurisdiction over RIAs,” and “ultimately, the question of whether IAs get examined regularly has to be decided by the [Securities and Exchange Commission] and Congress.” He said he considered it a compliment to FINRA’s abilities that the SEC announced “last fall it will devote more of its resources to examining RIAs” while giving FINRA more oversight of broker-dealers.

He argued that “FINRA has to be thoughtful about its rules; we don’t want to [thoughtlessly contribute] to regulatory arbitrage,” referring to some FINRA-regulated firms who might switch to an RIA model to avoid more frequent examinations.

Brown’s final question was to ask Cook what his goals are for FINRA for the next five years. “I’d like us to live up to our motto,” he responded, showing how FINRA can be “more effective than the federal government,” and that he’d “like to see a world where people see ‘FINRA’ on the door of firms” and those investors “feel good about” that affiliation.

As for his ongoing listening tour, Cook said that FINRA will release a notice “in the next few weeks,” as previously reported by ThinkAdvisor’s Melanie Waddell, seeking to improve its “engagement with members.”

— Check out ‘No Going Back’ on Commissions, Fiduciary Changes, Broker-Dealer CEOs Say on ThinkAdvisor.