Critics of the
Financial Industry Regulatory Authority Inc., the industry-funded broker-dealer regulator, have been pining for Congress to delve into the organization's workings with the same fervor it applies to the Securities and Exchange Commission.
For the first time in the five years I've been covering Finra, the regulator
appeared before a congressional committee on May 1 to discuss itself, not to testify on a particular rule.
The result was not what Finra critics had in mind.
The majority Republicans did indeed scrutinize the regulator. But they did so from the viewpoint of wanting Finra to put more “self” into “self-regulatory organization”.
Rep. Scott Garrett, R-N.J., chairman of the House Financial Services subcommittee on capital markets, wasted no time launching an attack on Finra when he gaveled in a hearing he said would provide “much-needed oversight of Finra.”
'DEPUTY SEC'
“Despite its status as a self-regulatory organization, it hardly resembles what many would term an SRO and now appears to be a quasi-governmental regulator — even a 'deputy SEC,'” Mr. Garrett said in his opening statement. “Indeed, its recent actions are closer to that of the ever-expanding federal bureaucracies that we have become accustomed to in Washington that seek to burrow further into the lives of each and every citizen.”
So the party that was once seen as Finra's chief ally in its past efforts
to extend its jurisdiction to investment advisers is now including Finra in its neuralgic reaction to regulation.
Mr. Garrett pressed Finra chairman and chief executive Richard Ketchum on whether the industry, especially small firms, had enough say in Finra's rule makings and other operations.
The situation gave Mr. Ketchum a chance to counter the notion that Finra is captured by its members – about 4,000 brokerage firms. He made the point that they can have input through Finra committees, but he also emphasized that the Finra board is majority public and that the regulator makes its own decisions.
FINRA'S BONA FIDES
“The balance is correct today,” Mr. Ketchum said. “What Finra provides is an independent organization that is informed by the industry. I do believe small firms provide a lot of input.”
The oversight hearing had suddenly become a forum for Finra to tout its investor protection bona fides.
Democrats also provided an opening for Mr. Ketchum. Rep. Stephen Lynch, D-Mass., asked Mr. Ketchum whether Finra's loyalty lies with its members or with the investing public.
Mr. Ketchum must have viewed that question the way California Angels star Mike Trout looks at a hanging curveball. It was something for him to hit out of the park.
“Our statutory responsibility and our passion is investor protection,” Mr. Ketchum said.
Instead of being rocked back on its heels over whether it is a shill for the industry, Finra emerged after an hour-and-a-half on Capitol Hill looking like an organization that watches out for the ordinary investor.
The negative tone toward Finra has shifted from Democrats, who now defend it, to Republicans, who now attack it.
“It used to be liberals who were anti-Finra,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “I consider that a testament to Rick's belief that [Finra] ought to act as a regulatory organization.”
