U.S. Chamber of Commerce Hits FINRA Hard

Would your blood start to boil if you felt a hand in your back pocket going for your wallet? Damn right it would.

Then your blood should also boil when the topic of financial regulatory reform comes up. Why?

For the very simple reason that the quality of our financial regulations has an enormous impact on that hand reaching for your wallet.

Do you have confidence that either the crowds on Wall Street or in Washington will truly and effectively protect you from that hand? Not much, right? Me neither. Who will? 

I wrote in May 2009 and continue to maintain today our Future Financial Regulation: Not a Question of Sufficiency, But of Transparency and Integrity,

The debate by those intimately involved in the regulatory oversight is typically framed as a question of sufficiency. That is, does the industry have enough regulation or not?

The media often frame the debate in political terms between laissez-faire proponents and those favoring increased government intervention. Both camps are missing the bigger picture, because both camps are feeding from the same trough.

The critical regulatory question facing our markets is not of sufficiency but is one of transparency. Regrettably, both ends of the regulatory spectrum do not want to address this glaring shortcoming because it exposes the very nature of the incestuous relationship between Wall Street and Washington.

Regrettably, before the debate even begins the premise of sufficiency versus transparency is accepted without question. Well, Sense on Cents is questioning the lack of transparency and resulting integrity of the process, which by its very nature strongly influences the outcome.

I held this belief in May 2009 and maintain it today. Does anybody agree with me?

Well, none other than the United States Chamber of Commerce would seem to possess the same ‘sense on cents’ perspective and stated as much in its recently released report, U.S. Capital Markets Competitiveness: The Unfinished Agenda. For anybody with even a passing interest in ‘that hand in your pocket’ this 35-page piece, or at least the executive summary, is a MUST READ.

While I strongly disagree with the chamber’s views on the new regulations addressing whistleblowers, I do agree with its overriding premise that,

The Dodd-Frank Act left nearly every pre-crisis regulator intact and failed to address longstanding, fundamental weaknesses in the system. While increasing the workloads of the existing agencies, the Act did not introduce the critical infrastructural and process changes within agencies needed to restore regulatory efficiency and effectiveness.

As a result,

The problem with U.S. regulation is not its quantity, but its quality. Well-run businesses depend on well regulated markets, and no legitimate business can compete in a marketplace that is not fair and transparent. The goal should never be less or more regulation, it should be better regulation.

A healthy serving of ‘sense on cents’ on that plate. Now let’s get more specific.

While Sense on Cents has written about a number of financial regulators over the years, regular readers are well aware I have directed much of my disdain at Wall Street’s self-regulator, FINRA. Does the United States Chamber of Commerce have anything to say about this crowd? Do they ever!! Are you sitting down?

The chamber hits FINRA hard in writing,

These organizations—most notably the Financial Industry Regulatory Authority (FINRA), the Self-Regulatory Organization (SRO) for securities firms, and Institutional Shareholder Services (ISS), the influential for-profit proxy advisory firm—fulfill many functions of government agencies and have either explicit or implicit delegated authority from government.

Despite their tremendous influence over the workings of the capital markets, these organizations are generally subject to few or none of the traditional checks and balances that constrain government agencies.

This means they are devoid of or substantially lack critical elements of governance and operational transparency, substantive and procedural standards for decision making, and meaningful due process mechanisms that allow market participants to object to their determinations.

Wow!! A right jab followed by a left cross the likes of which we have not seen delivered in Washington in a long time if ever. Give me more.

Unchallenged and largely unchecked, the influence of these organizations can be very detrimental to the development of vibrant capital markets. These organizations can, with few practical limitations, establish significant policies by arbitrary means and without any sound public policy or factual basis.

Why isn’t FINRA challenged and checked? Where is the SEC and Congress on this front? Too busy, perhaps? That is no excuse and unacceptable. America deserves better.

While the trend for publicly traded companies and financial services firms has been toward greater transparency and accountability, FINRA has largely escaped these changes.

Why? Who is holding FINRA to account? Who is truly watching that hand trying to get at your wallet?

Transparency into FINRA’s governance, compensation, and budgeting practices is extremely limited and superficial. Furthermore, FINRA is not subject to the Freedom of Information Act or the APA, nor is it required to conduct a cost-benefit analysis when it engages in rulemaking or exercises its policymaking functions.

Need I say more. Transparency is the great disinfectant.

Do you think it is time that FINRA open its doors, its books, its records and allow the American public to see what has gone on and is going on within this organization? You think?

Let’s add the United States Chamber of Commerce to the Project on Government Oversight, Colonel Elton Johnson of Amerivet Securities, an overwhelming number of FINRA member firms (primarily the smaller broker dealers), the Securities Industry Professional Association (SIPA), Sense on Cents and others calling for meaningful transparency and accountability within FINRA.

Over and above the points regarding FINRA, though, I strongly encourage people to review the embedded report from the U.S. Chamber of Commerce or at least the few pages of its executive summary. Why? All assertions to the contrary I still firmly believe that individual American consumers and investors need to protect themselves from that hand going for their wallet.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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