Congressman intends to hold Finra's feet to the fire on how SRO spends fine money

Rep. Brad Sherman said he'd introduce legislation if he had to in order to get Finra to comply.
SEP 08, 2017

A lawmaker who called on Finra to be more transparent about what it does with fine proceeds intends to keep the pressure on the broker regulator — even to the point of introducing legislation. "We will continue to ask Finra to provide a report to Congress on how it spends its fine money," Rep. Brad Sherman, D-Calif., said in a statement to InvestmentNews on Friday through his spokesman, Shane Seaver. "In the future, we may consider legislation on this issue." On Thursday, Mr. Sherman pressed Finra CEO Robert W. Cook on how the Financial Industry Regulatory Authority Inc. spends its fine revenue, which hit $173 million in 2016. "I would hope that you would furnish this committee and the public with a report," Mr. Sherman said at a House Financial Services subcommittee hearing. Mr. Sherman's question was one of several Mr. Cook received about transparency and accountability at Finra, an industry-funded organization that is overseen by the Securities and Exchange Commission but not directly by Congress. "Congress must make sure that Finra, as a self-regulatory organization (SRO), remains accountable and transparent to those it regulates while being flexible to react and respond to changes in the market," the committee said in a statement on Friday. In response to Mr. Sherman's Friday statement, a Finra spokeswoman referred to Mr. Cook's answer to Mr. Sherman at the hearing. "To the extent that there's value in us providing more insight into how we use fine money, I'm very open" to considering such a report, Mr. Cook said. A Finra spokesman did not say what specific steps Finra would take to fulfill the committee's request to be open about its operations. He pointed to Mr. Cook's statement that was included at the bottom of the committee statement in which Mr. Cook said that Finra 360, the regulator's self-examination that he launched earlier this year, would "result in potentially transformational change for Finra" and that he looked "forward to working with Congress." The use of fine revenue was one of many issues that InvestmentNews analyzed in an in-depth story on Finra published earlier this week. The concern about Finra transparency was bipartisan at Thursday's hearing. Rep. Tom Emmer, R-Minn., asked Mr. Cook about Finra's $1.6 billion reserve, its executive pay levels and the work of its board. Mr. Emmer asserted that Finra was acting more like the government than a self-regulatory organization. Mr. Cook responded by pointing to Finra 360. "This is really why we have Finra 360 ... to take a look at some of these questions," Mr. Cook said. "We enhanced the website disclosure around our board just yesterday [Sept. 6]. There are steps we can take to help advance transparency." The committee emphasized Finra 360 in its statement. "As an SRO, it is imperative Finra incorporates member feedback, such as through Finra 360, to improve operations so it can better serve broker-dealers and their customers," the committee stated. The initiative will give Mr. Cook some breathing room with Congress, said Duane Thompson, senior policy analyst at Fi360, a fiduciary training and credentialing firm. "The 360 program buys time for Finra to respond to its critics, including those in Congress," said Mr. Thompson, who attended the hearing. Several members of the subcommittee, including its chairman, Rep. Bill Huizenga, R-Mich., praised Finra 360. But Mr. Cook was still grilled by other lawmakers. "I was under the impression it would be more of a honeymoon oversight," Mr. Thompson said. "They didn't waste any time getting down to business."

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