Thursday, February 8, 2018

FINRA's New Public Engagement

About a week ago, FINRA released a Special Notice detailing a new portal for stakeholders to signal their willingness to serve on FINRA's board and other important committees.  The new portal creates a way for FINRA to increase engagement from key stakeholders, specifically including retail investors, consumer groups, and institutional investors.  Persons with an interest in serving on FINRA's committees, advisory boards, or Board of Governors can use this new portal to get their information to FINRA.

FINRA has drawn criticism in the past for bypassing investor and consumer advocates in favor of appointing persons with deep industry ties to serve as "Public Governors" on its governing Board.  In a recent op-ed, Andrew Stoltmann and I pointed out that credibly signalling commitment to FINRA's stated investor protection mission means that it should have investor advocates on its board.  In a report issued by the Public Investors Arbitration Bar Association (PIABA), we discussed our governance concerns in more detail and suggested that the FINRA Board consider a number of investor advocates with knowledge of the securities industry for future Public Governor seats.  FINRA has now created a process for bringing a broad array of candidates into its nominating process.

Some of these changes may be attributable to the FINRA 360 process led by Robert Cook, FINRA's new CEO.  This organizational review process has already resulted in substantial increases in transparency.  We praised some of these changes in the PIABA governance report:

FINRA recently announced its FINRA360 organizational improvement initiative. The initiative offers an opportunity for FINRA to build upon existing strengths and become a more effective force for investor protection. FINRA’s successes generate widespread public benefits by giving investors the confidence to invest for their futures. Investor protection also plays a vital role in business capital formation—keeping bad actors out of the market increases investor confidence and willingness to invest. Because FINRA’s policies and enforcement affect far more than its member firms, the public has a strong interest in its regulatory performance.

Transparency of FINRA’s governance structure has received some attention as part of its 360 process. In response to comments received through this process, FINRA disclosed additional information about its Board of Governors on its website for the first time. We encourage FINRA to maintain these disclosures and increase the availability of information about FINRA’s governance. This increased transparency decreases the odds that material conflicts will go undetected and potentially taint FINRA’s vital governance processes.

For this new portal to successfully engage stakeholder communities, FINRA should do some outreach to consumer and investor groups to ensure that awareness spreads quickly.  Unlike a new Beyoncé album, it might take some time for everyone to realize that something new and wonderful has arrived.  Consumer and investor groups should respond to this opening and outreach.

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