More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness is warning that the Financial Industry Regulatory Authority (FINRA), one of the non-governmental agencies with significant and growing influence over the capital markets, warrants much closer scrutiny as it is not bound by the “checks and balances” of other government agencies.
In its Summer 2011 paper, entitled “The Unfinished Agenda,” which focuses heavily on the Dodd-Frank Act, the Chamber says that despite FINRA's tremendous influence over the workings of the capital markets, non-governmental organizations like FINRA are generally subject to “few or none of the traditional checks and balances that constrain government agencies,” which “means they are devoid of, or substantially lack, critical elements of governance and operational transparency, substantive and procedural standards for decision making, and meaningful due process mechanisms that allow market participants to object to their determinations.”
These nongovernmental organizations, the report goes on to say, are not bound by the federal Administrative Procedures Act (APA), the congressional appropriations process or other comparable checks on their power.
In FINRA’s case specifically, the Chamber report notes that FINRA’s members no longer have a meaningful role in establishing its policies and priorities and the organization is not moving toward greater transparency and accountability. “Transparency into FINRA’s governance, compensation, and budgeting practices is extremely limited and superficial. Furthermore, FINRA is not subject to the Freedom of Information Act or the APA, nor is it required to conduct a cost-benefit analysis when it engages in rulemaking or exercises its policy-making functions,” the report says.
The report notes that FINRA’s “size, power, and influence grew tremendously” when it combined with NYSE Regulation, the regulatory function previously affiliated with the New York Stock Exchange. Rather than having two independent regulators offering different perspectives, the report points out that “today’s securities firms are overseen by one enormous nongovernmental regulator with substantial oversight by the SEC, but with substantially reduced engagement with—and responsibility to—its own members.”
As result of these changes, FINRA has moved away from the traditional notions of what it means to be a self-regulator, the report maintains. “In the past, FINRA members exercised substantial influence and control over the organization’s operations, policymaking functions, and regulatory and enforcement priorities and determinations. Today, FINRA’s members no longer have a meaningful role in establishing policies and priorities.”
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