WASHINGTON — Robert W. Cook, President and CEO of the Financial Industry Regulatory Authority (FINRA) today testified before the U.S. House of Representatives Subcommittee on Capital Markets, Securities, and Investment about FINRA’s operations and regulatory programs, and how FINRA is fulfilling its mission to protect investors and ensure market integrity while facilitating vibrant capital markets.
Below is his prepared oral testimony – his full written testimony is available HERE.
Chairman Huizenga, Ranking Member Maloney, and Members of the Subcommittee:
I would like to thank you for the opportunity to testify for the first time as CEO about FINRA’s operations and regulatory programs, and how we are protecting investors and ensuring market integrity while facilitating vibrant capital markets.
As you know, FINRA plays a critical, active role in the continued strength of U.S. capital markets and, working closely with the SEC, is the first line of oversight for thousands of broker dealer firms and individual brokers. FINRA operates a comprehensive surveillance and examination program to protect investors and the markets.
While the SEC has always supervised us closely, last fall they enhanced that oversight by establishing the FINRA and Securities Industry Oversight (FSIO) office—roughly 45 staff members who conduct comprehensive reviews of our operations. We welcome this extensive oversight, which is central to the effectiveness of the self-regulatory structure established by federal statute.
This Subcommittee is another important part of our oversight, and we welcome your ongoing work and hearings to address the many complex challenges facing the market structure of the equities and fixed income markets—including the 14 trillion dollar Treasury securities market. As you know, we recently implemented trade reporting for U.S. Treasuries with the Department of Treasury, SEC, and Federal Reserve Board. This initiative leverages TRACE, FINRA’s existing corporate bond trade reporting system, to limit the burden on the industry and promote regulatory transparency in this vital market at no cost to taxpayers.
“TRACE for Treasuries” exemplifies how FINRA can serve investors and the markets effectively and efficiently. It is vital that we understand what FINRA does well and what we can do better. That is why, shortly after joining FINRA, I embarked on a “listening tour” to meet with a broad range of stakeholders and hear their different perspectives on those questions.
This tour is ongoing, but I have already received important feedback from across the country. Informed by these discussions, we have undertaken a range of new initiatives described in my written testimony—a few of which I will highlight now.
One is FINRA360. With this year marking FINRA’s ten-year anniversary, I introduced FINRA360 as a multi-year initiative designed to take a fresh look at our operations and how we can be a more effective and efficient regulator.
One of our first actions was to issue a request for comment on how we engage with our member firms, investors, and other stakeholders. We received many helpful comments and are in the process of identifying changes that will help us to be a better SRO. For example, just yesterday we launched a FINRA web page with more information on our Board’s operations to provide greater transparency on our priorities and goals.
Also as a direct result of FINRA360, we recently combined two distinct enforcement teams into one unit under a new head of enforcement that reports directly to me. The unified structure will improve our ability to streamline investigations and provide a more coordinated and consistent approach to oversight.
Other results from FINRA 360 include:
- planning the first-ever publication of common examination findings to educate firms and facilitate compliance;
- identifying additional compliance tools and resources FINRA to assist small firms; and
- launching an Innovation Outreach Initiative to help FINRA better understand FinTech and to help firms that wish to use Fintech.
In its first months, FINRA360 is already making us better, and we will continue to make additional improvements in the coming year.
Beyond FINRA360, we have worked to strengthen our core regulatory programs and enhance protections for investors and the markets.
- We have advanced new initiatives to better identify high-risk brokers and stop bad actors who put investors at risk.
- We have requested public comment to update our programs to enhance the capital-raising process, including private securities transactions, while maintaining important investor protections.
- We finalized a tailored set of rules for firms with a specific business model that support capital formation.
- We have used the “cloud” to more efficiently execute our surveillance of more than 37 billion market events each day, enabling us to respond more effectively and more quickly to potential misconduct and dynamic market conditions.
- Last but not least, senior issues and investor protection are a priority. In 2015, FINRA launched a helpline that takes calls and investigates issues for investors. To date, we have received over 10,000 calls and firms have voluntarily returned nearly $4.7 million to customers.
- In addition, we recently finalized a new rule to enable a temporary hold on a disbursement of funds or securities by firms in a senior investor’s account when there is reasonable belief of financial exploitation. This rule appears to complement the key work this Committee is doing to protect seniors and vulnerable investors through the SeniorSafe Act. We welcome the opportunity to work with you to provide this important safety net for senior investors. To ensure that there are no regulatory gaps in the SeniorSafe Act’s coverage, FINRA respectfully requests to be added to the bill’s scope.
As you are aware, FINRA’s work extends far beyond these initiatives. I am constantly impressed by the dedication and talent of FINRA employees, who work tirelessly every day to fulfill our mission.
But FINRA’s ongoing success requires that we strive for continual improvement and, like our members, are always adapting to market changes. I believe the major initiatives of this past year, particularly FINRA360, will propel us to face the challenges ahead.
- We will continue to work to stop conduct that is harmful to investors and markets.
- We will ensure our regulatory operations are appropriately risk-based and running as efficiently as possible.
- We will continue to innovate and lead in our use of technology to support cross-market surveillance.
- Finally, we will continue to work to recognize the diversity of our members—including smaller broker dealers—and avoid “one-size-fits-all” oversight.
We are still in the middle of a self-assessment and organizational improvement that will likely result in transformational change for FINRA. As we continue this exciting exercise, we remain firmly focused on our core mission of protecting investors and market integrity while promoting vibrant capital markets. I look forward to working with Congress and other stakeholders to further these important goals.
Thank you and I am happy to answer your questions.
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FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.