'Wiser' B-D exam program on the way, says Finra's boss

Finra is adopting a more “laserlike focus” on fraud, Rick Ketchum, CEO and chairman of the securities industry’s self-regulator, said this morning in Baltimore at its annual conference. Mr. Ketchum noted that Finra examiners of broker-dealers now have more training in fraud detection. He also cited enhanced examinations of firms — as well as Finra’s new office on fraud — as examples of this pinpointed focus. The Financial Industry Regulatory Authority Inc.’s emphasis on fraud prevention and detection comes in the wake off Bernard Madoff’s $50 billion Ponzi scheme and Allen Stanford’s alleged $7.2 billion investor fraud. Finra — along with Securities and Exchange Commission — have attracted heavy criticism for failing to detect potential problems at those firms, as well as others. Indeed, in the past year and a half, dozens of smaller frauds and Ponzi schemes have come to light that have cost investors billions of dollars of losses. Both the industry and securities regulators are “dealing with a sever erosion of trust” from investors, Mr. Ketchum conceded. Regardless of the outcome of the financial-reform package before Congress at the moment, the securities industry and its regulators need to make sure that the same situation is not repeated, he said. To that end, Mr. Ketchum said, exams of broker-dealers in the next year or two will be based on identifying risk. A common criticism in the securities industry is that Finra exams often take a one-size-fits-all approach and that firms of different sizes and business types are not examined appropriately. Mr. Ketchum said Finra will move away from that sort of check-the-box method. The exam program, he said, will become “more knowledgeable and wiser.”