THIS IS A TIME when greater openness is being demanded of the financial and business communities. The Dodd-Frank legislation will demand more disclosure from financial institutions. The Securities and
Exchange Commission is demanding more disclosure from corporations and soon may require that all give shareholders a say on pay.
But the
Financial Industry Regulatory Authority Inc. hasn't received the message. Finra is resisting greater disclosure of aspects of its own operations.
As
InvestmentNews has reported, Finra has urged members to vote down seven non-binding proposals that will appear in its annual proxy. The proposals would require Finra to:
• Disclose the pay of its 10 most highly compensated employees.
• Offer a say-on-pay vote for the five most highly compensated employees.
• Study current or former Finra officers' or directors' involvement with the Bernard Madoff family or firms.
• Disclose the investment consultants and financial firms that Finra uses in its own investment activities.
• Make Finra's board meetings public.
• Create an independent inspector general for Finra.
• Disclose an
Internal Revenue Service opinion letter concerning NASD's $35,000 payment to members following its 2007 merger with the
New York Stock Exchange's regulation unit.
Some of these proposals may be debatable but overall are reasonable. Although Finra is a private, non-profit organization, it is deputized by the government to regulate a major part of the financial industry. That makes it a quasi-public body, and as such, it should err on the side of openness.
After all, the proposals are non-binding.
What exactly is Finra afraid of?
Finra didn't cover itself in glory during the Madoff scandal and the mortgage bubble, and greater openness would help restore its credibility within and outside the industry it regulates.
In its proxy response, Finra said that it already discloses compensation data in its annual tax return.
That isn't good enough. Finra members shouldn't have to wait until the tax return is filed and dig the information out. The salaries of Finra's top executives should be released within a month or two after they are determined.
After all, Finra is funded primarily by the fees and fines paid by members. They have a right to know promptly how much of the money they pay to Finra is paid to top executives of the organization.
Likewise, as the SEC moves toward requiring a say on pay for corporate shareholders, strongly nudged by Congress, Finra should allow members a non-binding say on pay.
Regarding the question of open board meetings, Finra said that it already discloses the information from the meetings and that opening the meetings to members “could stifle candid discussions.”
But the same thing could be said about school board meetings, local council meetings, state pension board meetings, etc., most of which are open. And when especially sensitive information is to be discussed, the board could go into executive session.
There are arguments for and against the other proposals. Finra members should consider the pros and cons themselves, and not be persuaded simply by the regulator's advice to vote against them all.
