Yesterday, the House of Representatives’ Financial Services subcommittee held an oversight hearing on FINRA, which levied a record $173 million in fines on members of the financial services industry in 2016. The committee questioned FINRA CEO Robert Cook on a number of concerns. Among the issues discussed were how funds FINRA collects from fines are spent, executive pay, and FINRA’s $1.6 billion reserve fund.
According to Rep. Tom Emmer (R-MN) one of the biggest concerns is FINRA’s lack of transparency in its rulemaking process and enforcement decisions. Member firms receive little information on these processes. Cook pointed to FINRA’s new FINRA 360 self-examination initiative as a response to this concern. Cook said that the initiative has led to re-structuring of FINRA’s enforcement arm, and that it now offers new online tools that should help small firms to comply with FINRA rules.
Cook was also questioned on how FINRA uses its funding. Though FINRA collected $173 million in fines last year, just $27.9 million of that money was distributed to investors. Cook said that fine revenues are important in helping FINRA to protect investors, and that he was “very open” to providing Congress with details on how the money is collected and used by FINRA. Cook also said that FINRA’s $1.6 billion reserve is used to fund regulatory initiatives and progress. The House committee suggested that FINRA’s top executives are overpaid, as seven top executives were paid over $1 million last year, and Republican lawmakers expressed concerns that the self-regulated organization was beginning to look too much like a government agency.
During the hearing, Cook told the committee that FINRA will now allow the public to download information on broker’s records in bulk. This will allow investors to find patterns at specific firms, which had been difficult to do previously. A Reuters analysis of data from 2016 and 2017 found at least 30% of employees at 48 broker-dealers had regulatory violations on their records. Cook also confirmed that FINRA would support a uniform fiduciary standard on broker-dealers and investment advisors across all types of accounts.
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NY Daily News