Reuters: FINRA is Hopelessly Conflicted

This is your must read column of the day: Via Reuters, Wall Street’s self-regulator blocks public scrutiny of firms with tainted brokers.

FINRA oversees about 3,800 brokerages and 630,000 brokers. If you want to understand why “self-regulation” does not work, this is it:

FINRA – the industry-financed overseer of brokerages – knows which firms tend to employ advisers with histories of misconduct sanctions, legal disputes and financial distress. But it keeps that data secret and says it can’t prevent longstanding hiring practices it acknowledges are a threat to investors.

The column is filled with infuriating paragraphs — like these:

National is among 48 firms where at least 30 percent of brokers have such FINRA flags on their records, according to the Reuters analysis, which examined only the 12 most serious incidents among the 23 that FINRA requires brokers to disclose. That compares to 9 percent of brokers industry-wide who have at least one of those 12 FINRA flags on their record.

In total, the 48 firms oversee about 4,600 brokers and billions of dollars in investor funds. (See the complete list of firms with statistics for each.)

FINRA officials acknowledged in interviews with Reuters that the longstanding hiring practices at certain firms are a threat to investors. But they also argued that they can do little to stop firms from hiring high concentrations of potentially problematic brokers because doing so is not illegal.

Reuters notes that “The regulator has created a dedicated unit focused on those high-risk firms, [FINRA’s executive vice president for regulatory operations] told Reuters, but she declined to discuss its budget, staffing or specific duties.”

This is the sort of thing that used to drive William Cohan crazy — no details on staffing, budgets etc. leads to assumption of an empty gesture. No one has been more outspoken about FINRA and its conflicts than Cohan has:

• Wall Street Justice System Is a Kangaroo Court (January 12, 2012)

• Wall Street’s Captive Arbitrators Strike Again (July 8, 2012)

• Wall Street’s Kangaroo Court Gets a Black Eye (July 29, 2012)

Don’t Let Brokers Keep Watch on Themselves (March 13, 2014)

• Wall Street’s Overlords Always Win (April 27, 2014)

• Finra Arbitration Case Offers a Peek Into a Murky World Street Scene (June 3, 2016)


I’ll have more on this eventually, but in the meanwhile go read the entire Reuters piece.


Wall Street’s self-regulator blocks public scrutiny of firms with tainted brokers
Benjamin Lesser and Elizabeth Dilts
Reuter June 12, 2017


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