SIFMA's C&L Society January Luncheon Addresses FINRA's 2019 Initiatives

Financial Institutions Law Alert

On January 23, 2019, SIFMA sponsored a “fireside chat” between Michelle Bryan Oroschakoff, Chief Legal Officer for LPL Financial LLC, and Robert W. Cook, FINRA’s President and Chief Executive Officer. Ms. Oroschakoff and Mr. Cook spoke candidly and casually about FINRA’s initiatives in the upcoming year. The fireside chat covered a wide range of subjects, including the value of FINRA’s Exam Findings and Exam Priority letters, references to FINRA360 and President Cook's Listening Tour, and issues with regulatory oversight around emerging technology “Reg-Tech.” This Alert highlights the issues that were addressed and provides a few key takeaways for consideration.

FINRA’s Exam Findings and Exam Priority Letters: Mr. Cook began by stressing the importance of reading both letters in tandem. He further advised that the purpose of the letters is to provide insight into the conduct and practices that FINRA finds problematic while providing guidance on best practices observed from other members in those areas.

Federal Government Shut-Down:
An appropriate area of discussion, the government “shut-down” and its impact on FINRA was also an early topic. Mr. Cook stated that while FINRA works closely with the SEC, as a non-governmental self-regulatory organization (”SRO”), FINRA has not been directly impacted by the shut-down in any meaningful way. Further, there is a trend in the SEC, which oversees FINRA, of allowing FINRA to resolve member disputes internally. Though not new, Mr. Cook discussed the Ombudsman’s office. The office allows members of FINRA who have concerns regarding unfair treatment or inconsistent regulatory practices to seek redress at FINRA, and if the member prefers, anonymously. Takeaway: Industry members who take issue with FINRA can address those issues within the SRO or escalate to the SEC if a member perceives an error in the SRO’s enforcement or examinations processes and the present shut-down of the federal government does not affect FINRA’s accountability procedures.

FINRA360 and President Cook's Listening Tour:
Mr. Cook emphasized that a critical focus of FINRA360 is to promote transparency and accountability. Concerning the Listening Tour, Mr. Cook shared his successes with this open approach. Casually engaging with members has been extremely helpful to understanding member concerns and improving relations between FINRA and its’ members. This improved level of interaction ultimately pushes FINRA to be better. For example, it allows for an open dialogue of best-practices and not-so-best-practices before an examination or an enforcement action even begins. Takeaway: FINRA is continually assessing its' approach and culture and presenting members with insight into what it sees as worthy approaches to common member issues.

Regulatory Technology (“Reg-Tech”):
Mr. Cook highlighted the importance of exploring ways to use technology to help support FINRA’s regulatory and compliance functions, specifically for its' supervisory purposes, by adopting regulatory technology such as Artificial Intelligence, machine learning and natural language processing to make their work more efficient and effective.

FINRA’s Culture Post-NASD Merger:
Research indicates that cultural change can be the hardest thing to effectuate after a merger. Mr. Cook explained the cultural impediments FINRA faced after the NASD merger, particularly with individuals in the industry still viewing FINRA as a legacy organization. Mr. Cook stated that in 2019 he would be talking more internally about FINRA’s culture and core values.

Investor Education:
Mr. Cook explained that two main areas drive FINRA's investor outreach materials: i) where FINRA sees potential concerns; and ii) investor communities who can potentially benefit from FINRA’s support. By way of example, FINRA adopted rules to help member firms in their dealings with the senior community, particularly those with diminished capacity.

Credit for Cooperation: Mr. Cook emphasized that providing guidance to member firms will be an ongoing initiative. One area of guidance that FINRA will be providing members with is a better understanding on what “self-reporting” means to the SRO in an effort to standardize industry understanding, specifically, addressing what credit for cooperation means when firms are required to report violations. Mr. Cook emphasized that while the standard has always been “extraordinary cooperation” as some level of cooperation is expected, FINRA plans to provide greater transparency around this area in the upcoming year.

Mr. Cook concluded the fireside chat by defining FINRA as a regulator that takes advantage of its unique self-regulatory model and lives up to its public service mandate. In sum, this was an informative discussion that provided insight into FINRA’s approach to industry issues.