Finra CEO Robert Cook keeps low profile — for now

While some give him high marks for his willingness to listen, other say it's time he put what he's heard into action

Jun 10, 2017 @ 6:00 am

By Mark Schoeff Jr.

From the day he was named president and CEO of Finra, Robert W. Cook has spent most of his time under the radar.

Now, some 10 months later, the Financial Industry Regulatory Authority Inc.'s 3,800 member firms and 633,800 registered reps are waiting patiently for Mr. Cook to reveal exactly how he intends to make his mark at the broker-dealer self-regulator and, more importantly, on the industry it oversees.

"He's doing the right things," said Michael Kitces, partner and director of research at Pinnacle Advisory Group Inc. "I like the attitude he's had and the effort to do the hard work of listening to lots of different constituencies. But we haven't gotten to the rubber-meets-the-road stage yet."

Others agree. While giving him high marks for his willingness to meet with Finra's member firms and others, they say it's time he put what he's learned into action.

"He hasn't done anything," said Alan Wolper, a partner at Ulmer & Berne. "It's all just talk. Nothing has changed on the boots-on-the-ground level."

'LEADERSHIP VOID'

Andrew Stoltmann, a Chicago securities attorney, frequent Finra critic and member of the Public Investors Arbitration Bar Association, puts it a little more pointedly. Citing a number of issues that he believes Finra should be more aggressive in tackling — unpaid arbitration awards, outdated expungement rules and the prevalence of high-risk brokers in the industry — he is critical of Mr. Cook's inaction during the early days of his tenure at Finra.

"Maybe he's extra thorough and diligent," Mr. Stoltmann said. But "there's a leadership void on a lot of these issues. There's a vacuum Cook could have stepped into to assume a major leadership position."

In response to critics of Mr. Cook's reform pace, Finra spokesman Ray Pellecchia highlighted a passage from Mr. Cook's speech at Finra's annual conference in May: "We must avoid incrementalism or convenient compromises when bold action is required."

Mr. Pellecchia also noted that "Finra360" — a top-down, bottom-up look at the regulator's entire operations — has in its first three months resulted in several initiatives. These include additional compliance tools and resources for small firms, a proposal to modernize registration rules to make it easier for people with no securities experience to take an initial qualifying exam, and a promise to publish later this year summary reports of exam findings.

TRUMP ADMINISTRATION

Mr. Cook's review of Finra's operations, whether intentionally or by coincidence, puts him in sync with the Trump administration's efforts to review federal regulations. Finra is a nongovernmental organization and is not overseen by the administration, but it does report to the Securities and Exchange Commission and its rules have drawn the scrutiny of Congress in recent years.

If nothing else, Mr. Cook has proven himself to be an introspective presence in the industry. At the start of his tenure, he conducted a sweeping "listening tour" of Finra's members, its fellow regulators, investor advocates, industry experts and others.

(More: Critics say Finra proposal on unpaid arbitration awards doesn't go far enough)

Among the questions he hopes to answer: Is Finra keeping its eye on the right issues? Is it staffed correctly and managed well? Is it communicating effectively with its members and individual investors?

"Finra360 will create a framework for the organization to convert feedback and input into action, action that will result in continued progress," said Sen. Mike Crapo, R-Idaho, chairman of the Senate Banking Committee.

At Finra's annual conference, Mr. Cook announced two initial results of his listening tour.

First, Finra will upgrade training for its examiners. Second, it will be more transparent about enforcement decisions.

HIGH-RISK BROKERS

At its May meeting, Finra's board of governors advanced proposals to strengthen sanctions against high-risk brokers — those with long histories of disciplinary problems — as well as the firms that hire them. They also agreed to boost disclosures related to brokers and firms that fail to pay arbitration awards.

But the latter move was criticized by Sen. Elizabeth Warren, D-Mass., who is considering legislation to ensure payments to arbitration winners if losing brokerages go out of business.

"Sen. Warren believes [the Finra board's action] doesn't begin to address the problem, and that Finra needs to create a pool to cover unpaid arbitration awards," Lacey Rose, a spokeswoman for Ms. Warren, wrote in an email.

So far, Mr. Cook has been characteristically cautious when it comes to one of the most controversial aspects of Finra's future: whether it will take over regulation of investment advisers from the SEC. In 2012, under Mr. Cook's predecessor, Richard G. Ketchum, Finra promoted legislation that would establish a self-regulatory organization for advisers. Finra argued that it was in the best position to become that SRO and increase the annual examination rate for advisers.

(More: Why do we need self-regulatory organizations? - Cook)

That measure failed, and similar legislation has not been introduced in subsequent sessions of Congress. Mr. Cook has said he has no immediate plans to go down that road again. Instead, Finra is concentrating on the increased broker examination load it has received from the SEC as the agency steps up its oversight of advisers.

"Right now, our focus is on responding to the SEC's request that we make sure we're focusing on the brokerage industry," Mr. Cook, a former head of the SEC's Division of Trading and Markets, told reporters at the annual conference. "The ground is changing; the industry is evolving. Whether there may be future changes of some kind, I don't know."

DEMISE OF CARDS

It's not clear whether Mr. Cook will pursue another of Mr. Ketchum's priorities that bit the dust: a massive data collection initiative, known as CARDS, designed to ferret out potential investor harm based on analysis of reams of transactional data supplied by firms. After strong resistance from Finra members, Mr. Ketchum withdrew the proposal.

The demise of CARDS gives Mr. Kitces pause when it comes to projecting how Mr. Cook will do as Finra chief.

"The fact that Ketchum couldn't get something like CARDS done concerns me about the extent to which the industry has captured its overseer," Mr. Kitces said. Mr. Cook "hasn't hit that wall yet, and we'll find out if he's got strategies to get over it more successfully."

Mr. Cook is confident his listening tour will not add more "self" into self-regulation.

(More: 5 regulatory issues every financial adviser should be watching)

"We have a number of checks and balances that help ensure that we're trying to strike the right balance," Mr. Cook told reporters at the conference. "We have got a board that is majority public. We've got close oversight from the SEC on everything we do. There's a lot of protections against us becoming controlled by the industry. At the same time, we're an SRO for a reason. Close interaction with the industry ... is vital to achieving our mission."

Finra's firm members will be watching closely to see what Mr. Cook does when he moves from listening to action.

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