FINRA Comes Up Short In Examination By Government Accountability Office

Tuesday, June 05, 2012 07:07
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FINRA Comes Up Short In Examination By Government Accountability Office

Tags: Dodd-Frank | FINRA | registered investment advisors | sec

There’s more action on the FINRA-SRO front as the Government Accountability Office (GAO) proceeds with its examination of the organization as mandated by the Dodd-Frank Act. The GAO examination has nothing to do with the Bachus-McCarthy bill introduced in April but its timing is indeed fortuitous for those opposed to a FINRA SRO role.

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FINRA has been fighting to be the designated SRO as proposed in the recently introduced House Financial Services Committee which laid the foundation for one or more SROs external to the SEC. The bill is designed to take up the slack from the SEC since it is felt the SEC does not have the person-power and funding to monitor the industry sufficiently.
 
The bill would extend FINRAs oversight to independent registered investment advisors as well as the registered reps it already monitors. Some claim that empowering external SROs would cost twice as much as simply giving the SEC the funds that it needs.
 
The GAO study not only looks at FINRA’s regulatory record; it also examines the salaries of its executives. The study urges the SEC to mandate a retrospective review of FINRA’s rules to determine if they are effective, are overly burdensome, or if some—such as the $100 limit on entertainment expenses per client—need to be repealed. It points out that the SEC does not monitor FINRA’s salaries although it does conduct an annual review of its activities.
 
One impetus for examining salaries including retirement plans and incentive compensation comes from the case of Richard Grasso who, while head of the NYSE, garnered a $139.6 million pay package that ultimately resulted in his departure from the exchange. FINRA currently only reports compensation data for its top 10 executives in its annual report and on its tax returns. But that data is outdated by at least six months.
 
The best outcome of the GAO study would be a broader view of what’s needed from a regulatory standpoint and the actual implementation of recommendations as opposed to simply using the study as a tool by bill opponents to defeat the proposition.

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