The Financial Industry Regulatory Authority plans to release in March a “progress report” summarizing the steps the self-regulator has taken under its FINRA360 initiative as well a “further discussion” on the enhanced examination framework the regulator adopted for 2018, Robert Cook, FINRA’s CEO, said Tuesday.
FINRA will also continue to assess this year whether to consolidate its current three exam programs into one, and “we’ll be making a decision this year” on how to proceed, Cook said during a question-and-answer session at the Securities Industry and Financial Markets Association’s compliance and legal conference in Orlando, Florida.
As Cook has stated previously, some of the exam programs at FINRA were “never fully merged” after FINRA was created in 2007 from the consolidation of the member regulatory functions of the National Association of Securities Dealers and the New York Stock Exchange.
“There’s a lot more to come on FINRA360,” Cook said during the Tuesday morning Q & A session with SIFMA General Counsel Ira Hammerman.
Cook launched the FINRA360 initiative, a top-to-bottom review of the regulatory organization, last year. Wednesday marks the initiative’s one-year anniversary.
As to the enhanced exam framework that the broker-dealer regulator has adopted for this year, Cook said that “it’s yet another step to make sure that our exams are more risk-based.” FINRA, he said, is still examining every firm on a “four-year backstop basis, but [the SRO] is moving away from designating firms as one-, two-, three- or four-year cycle firms.” Instead, FINRA is focusing on “are they a this-year firm or not based on their risk profile.”
The progress report will also detail “a bunch of process improvements that we’ve decided that we could roll out this year,” as well as actions taken under FINRA’s innovation outreach initiative, changes to FINRA’s committee structures and district committees.
Hammerman also queried Cook on complaints surrounding regulators’ engaging in “regulation by enforcement,” asking if Cook views this as a “real problem.”
“The trite answer is of course you regulate by enforcement, every regulator does,” Cook responded. “The challenge that some have raised is rulemaking by enforcement. I think there, yes, we should not be making up rules through enforcement.”
Having said that, “there’s always going to be some disagreement around the edges, because the rules are subject to interpretation.”
Cook also noted that the “early action” taken under FINRA360 of merging the self-regulator’s two enforcement programs “was not an easy” undertaking and “is still ongoing.”
The new unified enforcement group, led by Susan Schroeder, “met a few weeks ago for the first time,” Cook added. “Susan has been leading the effort to look at not just the organizational structure but also at the guiding principles that inform our thinking about enforcement.”
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