The
Financial Industry Regulatory Authority Inc. has a tough task ahead of it in searching for the right person to replace Robert Errico in running its member regulation division.
In addition to being an enforcer, the head of member regulation risks being hung out to dry in any scandals occurring on his or her watch. The post also requires an unusual mix of talent — someone who knows the industry and can work with it and yet be seen by outsiders as a tough regulator.
Mr. Errico, who stepped on plenty of toes in the industry and within Finra, is leaving at the end of next month.
“It's a difficult job,” said securities lawyer Hardy Callcott, a partner at Bingham McCutchen LLP, who worked with Mr. Errico when both were at Charles Schwab & Co. Inc.
Running member regulation “is not that attractive of a job to those who would be well-received” by both the industry and consumer groups, said Bill Singer, a securities lawyer with the law firm Stark & Stark.
At Finra itself, the new head of member regulation will have to deal with a restive staff. Employees are “concerned about layoffs, furloughs and salary cuts,” Mr. Singer said.
And with Finra getting scrutiny over its own executives' pay, the regulator may be hard-pressed to attract the right candidate.
In 2008, Mr. Errico had total compensation of $892,000. His base pay was $352,000.
Industry observers haven't heard any particulars about who might be in the running — or who might want to take on the largely thankless job.
The unit has responsibility for Finra's district exam program and sales practice oversight. Mr. Errico's successor will oversee 11 Finra regional offices with 840 employees and be responsible for ensuring that they approach regulation “in a consistent way,” Mr. Callcott said.
Finra spokesman Herb Perone declined to comment on the process of replacing Mr. Errico.
The most obvious candidate to replace Mr. Errico is Grace Vogel, who headed member firm regulation at the
New York Stock Exchange's regulation unit. She essentially split the member regulation post with Mr. Errico following the 2007 merger with NASD.
As part of the
consolidation, Mr. Errico's role was refocused on sales practice compliance, while Ms. Vogel was given responsibility for risk and operational oversight.
“That was a way to share power from both entities,” said Joel Beck, founder of The Beck Law Firm LLC, and a former Finra enforcement lawyer.
“Prior to
consolidation, [NASD] member regulation had one chief in charge of everything,” he said. “Quite possibly, they'll go back to that model and not have two co-chiefs.”
Observers say that Ms. Vogel, an accountant by training, doesn't have the experience of running a district office system, which didn't exist at the NYSE.
Nevertheless, she “seems to be the most sensible interim choice” to replace Mr. Errico, Mr. Singer said.
Finra is expected to search for candidates externally as well.
An outside appointment is never popular with staff members, who may see the move as a slight that limits their own career advancement, Mr. Singer said.
But the outside pool of talent may be somewhat limited.
Finra will be hard-pressed to hire anyone from one of the “tainted” wirehouses, Mr. Singer said, while a lawyer or regulator from a smaller firm “won't have the heft.”
Many in the broker-dealer community want someone with an industry background to fill the member regulation post.
They are unhappy about what they say is a “gotcha” mentality with the exam process, and an oversight program that they feel spends too much time chasing down minor violations by small firms.
Finra needs someone who is “willing to take a common-sense approach to regulation, who understands that not every violation or slip-up warrants vigorous prosecution,” Mr. Beck said.
Mr. Errico had been in the securities industry for more than 30 years before he joined NASD in 2003 to head the member regulation division.
Regardless, some in the brokerage community blame him for pushing examiners to find more violations.
But Mr. Callcott said that Mr. Errico was “much more of an ally for industry than most people thought.”
For example, he began a practice of giving firms early warnings about what Finra would look for in its exams, Mr. Callcott said.
“He knew if [Finra told] them what to do to fix things, they'll try,” he said.
Mr. Errico will remain as a consultant while Finra seeks a successor.
E-mail Dan Jamieson at [email protected].
