Finra wants to help the small broker-dealer: Cook

Given the stark decline in the number of brokerages over the past 10 years, the chief regulator is looking for 'steps we can take to create an environment to help small firms be successful.'

As the number of broker-dealers it regulates continues to decline, the Financial Industry Regulatory Authority Inc. is focused on bolstering small firms, according to Finra’s new CEO, Robert Cook.

“We want to create an environment where new broker-dealers or existing small broker-dealers feel that they can survive,” Mr. Cook said Thursday in New York at a conference of the American Institute of Certified Public Accountants and the SIFMA Financial Management Society.

Over the past 10 years, the number of firms Finra regulates has declined by 24%, with 3,784 broker-dealers now open for business. About 90% of those are small firms. Many believe the number of small firms will erode even further over the next three to five years.

A common criticism by small broker-dealers, defined as those with fewer than 100 registered reps, is that Finra is nickel-and-diming them with fines, and that Finra’s enforcement division recently has become overly aggressive.

Various trends, including widespread industry consolidation, are contributing to the long-term decline in the overall number of securities firms, Mr. Cook said.

“There are a lot of trends behind this. This isn’t all about Finra regulation, but we want to play a role in helping to support our small firms,” he said. “The smaller firms are being absorbed in different ways by the larger firms.

“Where we see the decline primarily is in the smaller broker-dealers,” he said. “That is not a big impact on Finra per se. It doesn’t affect our operations in a huge way, but it does matter and is an area of concern, because smaller broker-dealers do offer services to their communities and segments of populations who otherwise may be potentially underserved.

“We’ve identified the decline in small firms as something we want to focus on,” he said, adding that Finra’s small-firm advisory board and executives from small firms who are on Finra’s board were giving him insight. “We are talking to those people about steps we can take to create an environment to help small firms be successful.”

In remarks after his presentation, Mr. Cook said Finra has recently upgraded its compliance vendor directory, creating an opportunity for small firms to go online to look at different vendors, their services and pricing. Firms have told Finra “it’s helpful to have a place to go and look,” he said.