FINRA And Investors Disagree on Proposed Broker-Dealer Regulation

Jan 28, 2015 | Blog
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“Investor Protection. Market Integrity.” is the mantra of the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory agency for its members, namely securities broker-dealers and their registered representatives. Nowhere, however, in that mantra does it mention any debt or allegiance to those members. It should therefore come as no surprise to anyone that there are often conflicts between FINRA and the very people that it regulates but who also happen to pay the salaries of all FINRA employees.

The latest conflict is in response to FINRA’s proposal to require its member firms to provide monthly, regular reports about customer trading activity. FINRA believes that this information will allow it to react more quickly to improper activity by its members; members argue that not only will it be costly for them to provide all of that information to FINRA but that aggregating all of it in one place makes protecting customer privacy too difficult.

It would seem that both sides of this dispute have valid arguments and that at the end of the day some sort of final rule will be reached that addresses both sides’ concerns. But not until the Securities and Exchange Commission, who regulates FINRA and has final say, chimes in will we know where this latest proposal by FINRA is headed.

For more information or questions on FINRA and broker-dealer regulation, please contact Kevin S. Koplin.