Time for Reform: FINRA Posts Special Notice Requesting Comments on How to Best Further its Mission

The Financial Industry Regulatory Authority or FINRA is seeking feedback on how to best execute on its mission to regulate members who operate in the securities industry. FINRA has come under criticism in recent years as losing touch with its membership and negating its “Self-Regulatory Organization” (SRO) status. FINRA is a bit of a hybrid as it has government-like powers yet lacks some of the government oversight. FINRA seeks to drive market integrity by guaranteeing investor protection and robust capital markets. Recently in this publication, we referenced a statement by David Burton, the Heritage Foundation’s Senior Fellow in Economic Policy, who described FINRA as follows:

“FINRA is a regulator of central importance to the functioning of US capital markets. It is neither a true self-regulatory organization nor a government agency. It is largely unaccountable to the industry or to the public. Due process, transparency, and regulatory review protections normally associated with regulators are not present, and its arbitration process is flawed. Reforms are necessary.”

Late last year, FINRA installed new leadership, including Robert Cook as CEO. Cook has made the effort to better understand the many complaints emanating from its membership (and the lawyers that must defend or support them).

FINRA explains its intention as follows:

“FINRA must understand what it regulates. Active and continuous engagement with its stakeholders helps provide FINRA with expertise regarding the various business models of its member firms, the complex and rapidly evolving securities markets in which they operate and the wide range of retail and institutional investors those firms serve. FINRA can use what it learns from this engagement to enrich its regulatory programs and identify ways to protect investors and promote market integrity that are more practical, tailored and effective.”

FINRA regulates both Broker-Dealers as well as the emerging sector of funding portals. Investment crowdfunding platforms in the US are usually one or the other, or perhaps both.

It will be interesting to see what comes of the FINRA review.

Comments are being accepted until May 5, 2017. Emailing comments to [email protected] or by mailing comments in hard copy to:

Jennifer Piorko Mitchell
Office of the Corporate Secretary, FINRA
1735 K Street, NW
Washington, DC 20006-1506


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