New Finra CEO Cook will feel heat from both sides of the political aisle

Conservatives and liberals alike have stepped up criticism of the brokerage industry regulator

Jun 13, 2016 @ 2:24 pm

By Bruce Kelly

When he takes over as president and CEO of the Financial Industry Regulatory Authority Inc. next month, Robert W. Cook will be stepping into a role that has increasingly gained the attention of lawmakers in Washington.

Finra on Monday morning said it had tapped Mr. Cook, 50, the former director of the division of trading and markets for the SEC from 2010 to 2013, to succeed Mr. Ketchum effective in July. Finra's board of governors is still searching for a chairman to replace Richard Ketchum and intends to name a new one in the coming months.

Mr. Cook enters the top role at Finra as the organization is facing criticism and scrutiny from both conservatives and liberals alike.

Last month Wall Street critic Sen. Elizabeth Warren, D-Mass., and a colleague, Sen. Tom Cotton, R-Ark., sent a letter, calling on Finra to do more to protect investors from both advisers who have a history of misconduct and the firms that keep hiring them.

Adviser misconduct continues because of ineffective sanctions for advisers, the senators claimed in the letter.

“Each day that Finra fails to take stronger action is another day that working families will be exposed to an unacceptably high risk of financial adviser misconduct,” they wrote.

One big question for Mr. Cook is where he stands on issues that impact retail investors, such as the Department of Labor's new fiduciary standard for advisers working with clients' retirement accounts, said Barbara Roper, director of investor protection for the Consumer Federation of America.

“Finra has been criticized by some Republicans for not being soft enough on the industry it regulates and by progressives for not being tough enough,” said Ms. Roper.

She noted the securities industry's strong resistance to Finra's surveillance and monitoring proposal, the Comprehensive Automated Risk Data System, or CARDS. The industry criticized it for its potential cost and the possibility that it would expose customer data to hackers. Finra dropped the CARDS proposal last year.

“Finra really got really pounded on CARDS, not from progressives but conservatives,” Ms. Roper noted.

One plaintiff's attorney questioned how Mr. Cook's work defending securities firms would affect his role at Finra.

“While we don't know much about Mr. Cook, we do know that he worked at one of the most aggressive securities defense firms in the U.S., and for 18 years was at Cleary Gottlieb,” said Andrew Stoltmann. “I don't care how long you've been removed from defending these firms, there is no cooling off period that will ever prevent you from being truly impartial on issues that impact your former clients.”

“There are crucial investor protection issues in front of Finra, including the fiduciary duty, broker culture, the regulation of robo-advisors and the need for an unpaid arbitration pot for retail investors,” Mr. Stoltmann said. “Unfortunately, we have no idea what Mr. Cook's positions are on these issues.”

“But given his 18-year employment by a securities defense law firm, it is reasonable to question whether he will be an investor advocate or an advocate for the banks and brokerage firms that de facto paid his salary,” Mr. Stoltmann added.

Mary Schapiro was the chairwoman of the Securities and Exchange Commission from 2009 to 2012, as well as the chairwoman and CEO of Finra, formerly NASD, from 2006 to 2008. She worked with Mr. Cook at the SEC.

“I think he will be a phenomenal leader of Finra,” she said, adding that he was incredibly dedicated and a consensus builder. “Our world has moved in a political direction,” she said. “That's now a function of our times."

“He will be a tremendous advocate for retail investors and investor protection, and more broadly focused on market transparency and fairness,” said Ms. Schapiro, now the vice chairwoman of the advisory board for the Promontory Financial Group, a consulting firm.

“Everything is more political, but (Mr. Cook is) used to the politics,” said Dan Gallagher, who briefly reported to Mr. Cook in 2010 and who later served as an SEC commissioner. “He's really brilliant, the whole package. And he's remembered very fondly at the SEC by those who worked with him. Replacing [Mr.] Ketchum, he has big shoes to fill but I can't think of anyone better than Robert.”

Most recently, Mr. Cook was a partner in the Washington office of Cleary Gottlieb Steen & Hamilton. At Cleary Gottlieb, Mr. Cook focused on the regulation of securities markets and market intermediaries, including broker-dealers, exchanges, alternative trading systems and clearing agencies, according to a statement by Finra.

Mr. Cook also directed the SEC's staff's review of equity market structures and its analysis of the so-called "flash crash" of May 2010.

A career securities regulator, Mr. Ketchum has been Finra's chairman and CEO since 2009. He said last fall he intended to retire.


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