Robert Cook wants a 360-degree review of the Financial Industry Regulatory Authority.
The FINRA360 initiative, launched by Cook after conducting a listening tour during his first year as head of the broker-dealer regulator, will allow for a comprehensive probe of the self-regulator’s operations and programs.
“Being an effective self-regulatory organization that protects investors while promoting vibrant capital markets requires that FINRA engage member firms and the public in meaningful dialogue,” Cook said recently. “FINRA invests significant resources in its current engagement programs, and we are exploring how these programs can be made more effective without compromising our regulatory responsibilities. Requesting comment is an important part of that evaluation.”
As part of the review, FINRA began seeking feedback in late March on how to enhance the self-regulator’s programs for engagement with its members and other stakeholders. Other requests for comments came in early April on rules that address the capital-raising activities of BDs, underwriting terms and arrangements regarding the public offering of securities, and a plan to create a limited safe harbor for eligible desk commentary that may rise to the level of a research report.
Cook appointed Nathaniel Stankard as his senior advisor to in late March to spearhead special projects, including FINRA’s strategic review of its operations.
Brad Bennett, former chief of FINRA’s enforcement division, says Cook is a “brilliant lawyer who believes strongly in retail investor protection,” but he faces a “variety of challenges stemming from the migration of [BD] accounts to fee based” as well as the “increased oversight” of FINRA by the SEC.
The SEC “has shifted many of its examiners from the broker-dealers to the investment advisors, maintaining a focused exam team to cover the highest risk firms and most serious potential BD violations,” says Bennett, now a partner at Baker Botts in Washington. The SEC’s “shift of examination resources leaves FINRA with the primary responsibility for the bulk of the BD examinations. The SEC is balancing the risk of reducing its BD examinations and increasing its oversight examinations of FINRA to ensure that FINRA meets its broker-dealer examination obligations.”
The SEC launched last October a dedicated inspection team to oversee FINRA. The new group, FINRA and Securities Industry Oversight (FISIO), is headed by Kevin Goodman, head of the agency’s broker-dealer exam program.
Bennett added that Cook is unlikely to initiate a new battle for oversight of advisors.
FINRA “stands ready to fill the gap if there is a regulatory need for additional examinations of investment advisors, but FINRA recognizes that it would take a major crisis involving multiple investment advisors to overcome the opposition on Capitol Hill and within the industry to expand FINRA’s jurisdiction to include investment advisors,” Bennett said.
— Read SEC Launches New FINRA Inspection Team on ThinkAdvisor.