Editor’s note: This interview first appeared in Human Capital, a newsletter by Washington Bureau Chief Melanie Waddell about the people who shape the financial regulatory space.
Welcome back! This edition of Human Capital hits as the markets are absorbing the shock of the Trump administration’s Thursday tariffs announcement. But also on the minds of industry watchers is how the Financial Industry Regulatory Authority is moving along in integrating its two enforcement divisions — now aptly called “One Enforcement” by the broker-dealer self-regulator.
Who’s the person to ask? Susan Schroeder, of course, who heads FINRA’s enforcement team. During a recent FINRA Unscripted podcast, she laid out where her team stands and where it’s headed. I checked in late this week with FINRA and its former enforcement head Brad Bennett to follow up on some of Schroeder’s comments.
FINRA chief Robert Cook said recently that merging FINRA’s two enforcement divisions under FINRA360 over the last year “took a lot of work,” that it was “progressing remarkably well” and that integration was “essentially complete.”
Schroeder, Cook said, will “continue to evolve the program” this year. Schroeder agreed, stating in the late May podcast that the One Enforcement team is “building this path as we walk on it.”
The bottom-line benefit in combining FINRA’s legacy enforcement group with its legacy market regulation legal group: “A more consistent and foreseeable enforcement program,” Schroeder said.
A regulator “is only effective when the entities or individuals that it regulates know what the regulator is going to do. You need to know whether or not your conduct violates a rule. You need to understand the consequences of what misconduct will be. That’s the whole point, really, of the regulatory structure — deterrence and remediation — and we cannot achieve deterrence unless we are extremely clear about what’s OK and what’s not OK.”
What triggered the integration? There was “this sense that outcomes between the legacy market regulation legal group and the legacy enforcement group may not have always been proportional to each other,” Schroeder said.
The two enforcement teams had “different specialized knowledge, but the issue that we found we were having was that the two departments sometimes looked quite different from each other, including the disciplinary actions they were bringing, even to the point where the documents had a different look and feel.” Coming off of Cook’s “listening tour and hearing comments from the industry and other stakeholders, we realized how important consistency and foreseeability are in order to complete our regulatory mission.”
How do you achieve consistency and foreseeability? First is through a “structural reorganization,” Schroeder said, with the group being restructured over the last several months “to take better advantage of all of the resources we have internally.”
A new department was also created within enforcement called the Council to the Head of Enforcement, she continued, which will be “involved in reviewing cases in the beginning phase and at the very end of a case in order to add an additional set of eyes specifically trained to issues of consistency.”
This team, she added, will work on “not only consultation at the end of a case to make sure that the outcome is one that is foreseeable and really makes sense for the industry, achieves our purposes of deterrence, but also that incoming cases to enforcement — there’s some consistency to those — and an efficient and consistent approach that the team takes to incoming cases.”
Schroeder said she was adding more staff to that team and planned to “use that staff to build out some of our new processes.” A FINRA spokesperson said all the hires “of a handful” of folks would be internal.
Former FINRA enforcement chief Bennett, who’s now a partner at Baker Botts in Washington, told me Friday that he was confident the team’s work would “fully address the industry’s concerns regarding potentially inconsistent enforcement actions.”