FINRA Considering Merging Enforcement Programs, Cook Says

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By Antoinette Gartrell

The Financial Industry Regulatory Authority is considering combining two of its enforcement programs to better streamline its processes.

Currently, FINRA has two separate enforcement programs, one in its member regulation group, which focuses on member firms and their employees, and another in its market regulation group, which oversees over-the-counter trading. “We are one team, and all of us are responsible for FINRA’s success,” FINRA President and CEO Robert Cook said May 17 at the 2017 FINRA annual conference in Washington.

According to Cook, many stakeholders view the units as two different regulators, which could lead to duplicative and burdensome efforts for both the firms and FINRA. As a result, he said, his organization is weighing the pros and cons of whether the two units should be combined.

The potential merger is part of an ongoing multi-year initiative called FINRA360, in which the self-regulatory organization is conducting a complete review of day-to-day functions and programs, with input from both inside and outside the organization.

Although FINRA has high hopes for the initiative, it recognizes that it will be no easy task. “FINRA360 will take time—a comprehensive and thoughtful review requires no less,” Cook said. However, he said FINRA won’t wait until the entire review is completed before making necessary changes.

Comment Request

As part of the review, FINRA also is taking a close look at its rules for private securities transactions and business activities taking place outside of the firms.

The rules were designed to protect investors from potentially problematic activities unknown to the firm, but that could be perceived by the investing public as part of the firm’s business, FINRA said. Additionally, the rules protect firms from reputational or litigation risks when employees engage in business and securities activities outside of the firm.

Comments on whether the rules effectively address the problems they were intended to mitigate and on any compliance challenges are due by June 29.


Another area that FINRA is focusing on is the impact of fintech-related business models and tools on investors and broker-dealer operations.

In the near future, the self-regulatory organization expects to launch a FINRA Innovation Outreach Initiative to “proactively engage with those in the securities industry seeking to develop or utilize new financial technology applications and other innovations,” Cook said. The initiative will help FINRA better understand these innovations and how it can foster a collaborative environment for productive interactions with firms operating in this space, he said.

An important initial step in this outreach initiative will be FINRA’s Blockchain Symposium taking place in New York on July 13, Cook said.

Report Cards

FINRA is also continuing its crackdown on bad practices at broker firms. Last year, it started handing out cross-market report cards to brokers noting manipulative activities, Cook said. He said the effort has led to a 68 percent decline in “layering exceptions,” in which traders make and then cancel orders they never intended to execute.

Since the manipulative activity can be extremely difficult for firms to detect, FINRA is now alerting its members when its surveillance programs flag a suspicious trading pattern. “These new report cards do not reflect conclusions that violations have occurred. Rather, they indicate potential problems that a firm needs to review. It is our hope that you can use this information to upgrade your internal controls and to address any problematic activity long before FINRA can complete a formal investigation,” Cook said.

By the end of the year, FINRA hopes to expand the program to include two more types of cross-market surveillance alerts, Cook said.

To contact the reporter on this story: Antoinette Gartrell in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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