House lawmakers grill Finra CEO Robert Cook on fine money, executive pay, transparency

Mr. Cook points to the regulator's in-house operational review, Finra 360, and says it will likely yield 'transformational change'

Sep 7, 2017 @ 5:41 pm

By Mark Schoeff Jr.

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(Getty Images/iStockphoto)

House lawmakers pressed Finra CEO Robert Cook on a host of concerns Thursday, including how fine money is spent, the regulator's $1.6 billion reserve fund and executive pay.

During a Financial Services subcommittee oversight hearing, Rep. Brad Sherman, D-Calif., expressed concern about the Financial Regulatory Authority Inc.'s practice of retaining fine proceeds rather than giving that money to investors who were harmed by broker malfeasance. He also said that Finra should be more transparent in revealing how it spends fine money.

"Are you considering returning a greater percentage of the money to investors," Mr. Sherman asked Mr. Cook. "Do you intend to make a more robust and meaningful public report on how you use that fine money?"

Mr. Cook said that fine revenue helps Finra, an industry funded self-regulator, protect investors. Finra levied a record $173 million in fines in 2016.

"The fine monies we collect are an important part of funding investor-protection initiatives," Mr. Cook said. "Fines go up and down every year. To the extent that there's value in us providing more insight into how we use fine money, I'm very open to…"

At that point, Mr. Sherman cut off Mr. Cook.

"I would hope that you would furnish this committee and the public with the report," Mr. Sherman said. "It's not exactly taxpayer money, but it's money collected in fines. All the other fines are [collected] by government as government money" and government agencies have to account for how they spend their money.

The use of fine revenue was one of many issues that InvestmentNews analyzed in an in-depth story on Finra published earlier this week.

Rep. Tom Emmer, R-Minn., probed Mr. Cook about Finra's $1.6 billion reserve and executive pay, also topics highlighted in the InvestmentNews story.

"How do you get more transparency?" Mr. Emmer said. Finra "looks more like a government agency with a heavy hand."

As he did throughout the hearing, Mr. Cook pointed to Fina 360, the regulator's self-examination initiative that Mr. Cook launched earlier this year to get feedback about Finra's governance and operations from Finra members, experts and investor advocates.

"Transparency and disclosure have certainly been among the comments that we've gotten," Mr. Cook told Mr. Emmer. "We're going through a process where we're organizing the comments to understand how we can best respond to them. There are areas where people have asked for more disclosure. Most of the member firms I've talked to, this is not the No. 1 issue. They are more focused on how our exam program works."

In his opening statement, Mr. Cook said that Finra 360 has already resulted in a restructuring of the self-regulator's enforcement arm, offering new online tools to help small firms comply with Firna rules and a plan to publish exam findings.

"We are still in the middle of a self-assessment and organizational improvement that will likely result in transformational change for Finra," Mr. Cook said.

The session marked the first time that Mr. Cook has testified before Congress since taking the Finra helm in August 2016.

"I appreciate the oversight and the interest in Finra's programs and look forward to continuing working with members on some of the issues they raised and some of the follow-up that they have proposed," Mr. Cook told reporters after the hearing. "They helped us identify areas of concern that they have or that they're hearing about, and we'll be certainly taking that into account as we move forward with [Finra 360]."

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