The Financial Industry Regulatory Authority has launched a review of its enforcement program to be spearheaded by its enforcement chief, Bill St. Louis, as part of the FINRA Forward initiative.
St. Louis will work to develop meaningful, common-sense improvements to the enforcement program while two outside experts — Troy Paredes of Paredes Strategies, a former SEC commissioner; and Paul Eckert, a professor at William and Mary Law School — "will consider governance, policies, processes, and communications, as well as how FINRA enforcement works with other FINRA departments and federal and state regulators," FINRA CEO Robert Cook said Friday in a statement.
FINRA opened up its rulebook as part of the self-regulatory organization's three-pronged FINRA Forward initiative, launched in late April.
Enforcement, Cook said, "is an important focus for FINRA Forward, alongside examinations, market surveillance, and our other core regulatory functions for overseeing member firms and their associated persons." FINRA, he added, "must also be prepared, when necessary, to bring enforcement actions to address wrongdoing, deter future misconduct, and protect investors, member firms, and markets from significant harm."
Paredes and Eckert "will help identify and assess opportunities for FINRA’s enforcement function, together with related oversight programs, to better serve FINRA’s self-regulatory mission," Cook said in the statement. "Among other areas, they will consider governance, policies, processes, and communications, as well as how FINRA enforcement works with other FINRA departments and federal and state regulators," and will share their views with FINRA’s Board of Governors.
Cook said in May that the FINRA Forward initiative "is all about change, constant change."
FINRA "member firms change and investors change, so we have to change as well," Cook said. "And that change has to be continuous."
Cook said that FINRA needs its members "to help us decide what [rules] to focus on," including Securities and Exchange Commission rules that "may be in play here."
Adam Gana, president of the Public Investors Advocate Bar Association, told ThinkAdvisor on Monday in an email that the organization "welcomes FINRA’s recognition that its enforcement program needs meaningful reform. A fair, transparent, and effective enforcement process is essential to investor confidence and market integrity."
PIABA, a group of lawyers representing investors in disputes with the securities industry, urges "FINRA and its outside advisors to center the investor experience in this review and ensure that accountability for misconduct is real — not theoretical," Gana added. "We look forward to engaging further as this work progresses."
Brian Rubin, partner at Eversheds Sutherland in Washington, said in another email that while "it’s terrific that FINRA is exploring common-sense improvements to its enforcement program, firms and individuals under investigation should clearly understand the process and view it as fair. Likewise, when the industry and the public read about enforcement actions, the reaction should be, 'That outcome makes sense.'”
However, "now there are times when questions arise about why Enforcement is pursuing a particular approach in an investigation," Rubin said. "Additionally, outcomes in similar cases sometimes result in significantly different sanctions, which can raise concerns about consistency and transparency."
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