IRVINE, Calif. — It’s FINRA, and it’s final.
But the name of the self-regulatory organization formed by the
consolidation of NASD’s and the
New York Stock Exchange’s regulatory units is drawing a new wave of criticism.
Unlike earlier critiques of a name that was dropped because it was similar to an Arabic term used to refer to the traditional biographies of Muhammad, the criticism this time comes from regulators, attorneys and others who believe that the word “authority” connotes powers the
Financial Industry Regulatory Authority Inc. does not possess.
“An authority by definition is a government entity,” said Joseph Borg, president of the North American Securities Administrators Association Inc. in Washington.
The new organization, which is based in New York and Washington, “should be called an association,” said Mr. Borg, who also serves as director of the Alabama Securities Commission in Montgomery. “That would be a more accurate name.”
‘Government suit’
Others agree.
“Anytime you call yourself an authority, you cloak yourself in a government suit,” said Steven Caruso, president of the Public Investors Arbitration Bar Association and a partner in Maddox Hargett & Caruso PC in Fishers, Ind.
The name is “classic NASD — trying to make themselves look as legitimate as possible,” said Andrew Stoltmann, a plaintiff’s attorney and partner in Stoltmann Law Offices PC in Chicago.
NASD, a Washington-based self-regulatory organization, was funded by the industry — a situation that confused investors, he said. The new name “doesn’t do anything to allay that confusion,” Mr. Stoltmann said.
The SRO disputes the notion that its new name is confusing.
“We believe the name FINRA will bring clarity to the role of the organization,” said spokesman Herb Perone.
Brokers and brokerage firms are required to disclose their affiliation to an SRO to clients.
“Wouldn’t it be misleading [for a broker or firm] to say they’re a member of the Financial Industry Regulatory Authority?” asked a state regulator, who asked not to be identified. “It makes it look like you’re a regulator.”
As a matter of state law, entities can’t use names that are “calculated to confuse” people, said Bill Singer, a securities lawyer with Stark & Stark of Lawrenceville, N.J.
The FINRA name is also inconsistent with the Securities Exchange Act of 1934, said Richard Goble, president of the Financial Industry Association of Longwood, Fla., which represents smaller firms.
The act, together with other federal law, allows registered securities associations to regulate the industry and defines them as associations of brokers and dealers.
The new consolidated entity “cannot be an authority under [the act],” Mr. Goble said. “They’re still an association. They’re just trying to hide from that fact.”
The name change has renewed fears by some smaller firms that the new SRO was set up to disenfranchise them and will not be responsive to their concerns.
NASD “swapped the A in ‘association’ for A in ‘authority,’” said the executive at one small firm, who asked not to be identified. “There is a clear difference in the meaning, and a clear signal to the industry.”
The latest criticisms follow complaints issued last month by the Financial Planning Association of Denver and the Arlington Heights, Ill.-based National Association of Personal Financial Advisors.
The planning groups said the “financial industry” part of the FINRA name gave the misleading impression that the organization would regulate planners and advisers.
Advisers and planners are regulated by the states and the SEC. Some of those individuals are also licensed to sell securities.
Meanwhile, FINRA on Friday announced its choices for seven industry candidates to run for its board. The Financial Industry Association promised to challenge all seven nominees in elections to be concluded Oct. 26.
