I have told many people over the years that the only way to effect true change at FINRA must come from the inside. I can write blog posts every day pointing out what I perceive to be the occasional error of FINRA’s ways, but apart from the cathartic effect it provides me to vent, the likelihood of my opinions having any real impact is pretty dubious. Similarly, clients of mine who complain about the treatment they have received from FINRA examiners, or the cost of achieving compliance, or the patent unfairness of the arbitration process, or whatever, who claim to “know” some politician who is going to rein FINRA in once they hear the horror stories that we describe in this blog are, sadly, deluding themselves. No elected official, at any level of government, is going to take a public stand that FINRA is too hard on its member firms. Not after Bernie Madoff.
With that said, elected Board members at FINRA can do so; frankly, they should do so. Let’s not forget that FINRA is, after all, a self-regulatory organization. It is broker-dealers directly governing themselves, with governmental oversight (in the form of the SEC) one level removed. The treatment that BDs receive from FINRA is, at least in theory, no more than what the industry agrees to receive. As the great Walt Kelly put it so pointedly,
But, member firms seem to have lost sight of this, that, really they are FINRA, and that FINRA exists because 75 years ago the industry decided that the best way to keep things under control was for it to regulate itself, rather than endure direct governmental oversight.I was very happy, therefore, to read recently of the campaign presently underway for the “mid-size” firm seat on the Board between Brian Kovack, of Kovack Securities in Ft. Lauderdale, and John Muschalek, of First Southwest Securities, in Dallas. I have known them both for probably going on 20 years, and believe that either will serve very well as the voice of their constituents, many of whom are, frankly, pretty angry.
Brian and John have taken fairly diverse approaches to their respective campaigns for this election, which takes place on July 30. Brian, who got on the ballot by obtaining enough votes from member firms to force a contested election, has been rather outspoken about his views. On the other hand, John, who is a current member of the NAC, i.e., the National Adjudicatory Council, and was nominated for the mid-size seat by FINRA, has remained relatively quiet, perhaps allowing his existing record to speak for itself. Regardless of the difference in their approach, I believe that both candidates fully understand what their role would be on the Board if elected: they must represent their constituents, i.e., mid-size firms, defined to be BDs with between 151 and 499 RRs. They are not there to serve as “yes men” to FINRA initiatives raised by FINRA management. They are not there to remain silent when considering proposals with significant anticipated impact on member firms. They must serve as the voice of the members. If they do not, the concept of self regulation becomes nothing more than a quaint notion harkening back to the good old days, like “TV dinner” or “drive-in movie.”
I am heartened by the vigor with which Brian has outlined his platform, because now is not the time for pussy-footing around. If the Board is really ever going to take steps – any steps, whether aggressive or just baby steps – to begin to reduce the burden of compliance with which FINRA (and the SEC, and Congress) have saddled broker-dealers, the industry needs representatives like Brian, and John, who not only have the bona fides to establish that they know what they are talking about, but who are actually willing to speak their minds, with conviction. It is not relevant to me that Brian is a so-called “dissident” candidate, whatever that means anymore, and that John was nominated by FINRA. What matters is what they each bring to the table. Either would be a good choice.
So, the long and short of it is that if you are a mid-size firm, vote. Show an interest in your industry. Remind FINRA that it answers to you, not the other way around.