There has been a lot of talk, especially given the relatively recent change in the Executive Branch in Washington, about the problem with the “revolving door,” a concept so wide in scope that it actually has its own Wikipedia page.  It is defined to be the “movement of personnel between roles as legislators and regulators and the industries affected by the legislation and regulation.” It happens all the time in broker-dealer world, especially with FINRA and the SEC, where lawyers move back and forth between private practice and the regulator.

The examples are rampant.  Look no further than the current and former Chairmen of the SEC, Jay Clayton and Mary Jo White.  Both came from law firms before taking the reins at the SEC, and Ms. White is now back in the defense business again.  Mary Schapiro, former head of FINRA and then the SEC, is now a consultant to the industry.  Heck, look at me, I started in private practice, worked at NASD for a decade or so, and then returned to my current defense work 13 years ago.  Of course, unlike those others, I was never an officer of NASD, so my career path back to private practice is a bit less interesting, and my thoughts on things of much less import.

FINRA passed a rule about it a few years, even if it is rather a bit tepid in its scope, prompting immediate criticism. Conduct Rule 9141(c), subtitled the “One Year Revolving Door Restriction,” provides that “[n]o former officer of FINRA shall, within a period of one year immediately after termination of employment with FINRA, make an appearance before an adjudicator on behalf of any other person under the Rule 9000 Series.”

The problem with the concept of the revolving door is that it is, basically, unseemly. It is just amazing to listen to some former senior ranking officer of a securities regulator stake out a position that, prior to going through the revolving door, would never have been uttered aloud.  Judge for yourself.  The latest issue of Investment Advisor contains a column featuring comments from Brad Bennett, who recently rejoined Baker Botts after departing from his former job as head of FINRA’s Enforcement Department, a position proudly featured (and rightly so) in his firm bio.  According to the article, when asked about the regulatory burdens that broker-dealers face, Mr. Bennett said these burdens “have not been reduced. It is difficult to comply with the broad array of compliance responsibilities if a broker-dealer does not have scale. . . .  There is no doubt that the regulatory burden is more manageable from a business perspective if you are an investment advisor.”

I am unfamiliar with any remarks that Mr. Bennett – or any other FINRA officer – ever made (at least while still employed by FINRA) (a) admitting that it is hard for broker-dealers to comply with regulations, and (b) suggesting that small firms might be better off leaving FINRA and becoming investment advisors (thus, removing themselves from FINRA’s jurisdiction). The funny part about this is that Mr. Bennett is telling the truth.  I imagine that my clients and I are in practically universal agreement with his new (at least newly voiced0 viewpoint on regulation and compliance.  The problem is, as I suggested, where was this sentiment while he ran Enforcement?  Where was the concession that compliance these days is hard, hard, hard?  Where was the sympathetic ear to pleas of mercy when there was no evidence of intent, no customer harm?  Where was anything other than the heavy hand of Enforcement?  It simply wasn’t there.

I have no doubt that Mr. Bennett, and Ms. White, and Ms. Schapiro, and all the other former officers of FINRA and the SEC are doing just great in their new gigs, and that clients will continue to flock to them to provide the sort of access to their former colleagues at the highest levels of FINRA and the SEC that can often work wonders in resolving thorny problems. And, truly, I wish them all the best.  But, that does not change the fact that the revolving door problem exists as much as it ever has, and that whatever rules or policies have been implemented to address the problem have been ineffective.