Update: FINRA Board of Governors Meeting
September 28, 2010
Dear Executive Representative:
As you know from my August 13 email, the FINRA Board of Governors committed to review at its September meeting the non-binding proxy proposals that had been approved by a majority of firms. Today, I want to report to you on our discussions on these matters and outline the actions the Board has agreed to take.
After careful consideration, the Board instructed FINRA staff to take steps on the following proposals:
The Board's instructions to FINRA staff took into full consideration both the proposals' specific recommendations and their underlying call for greater transparency. The Board's determination with regard to the proxy proposals also reflects its responsibility to ensure the integrity of its processes and deliberations, carry out its fiduciary obligations, and shield FINRA from undue external influence so that we can carry out our important mission of protecting investors.
With that in mind, and understanding that I don't speak for every Board member, let me set out the reasons why action was not taken on the other four proposals:
Regarding the "say on pay" proposal, the Board believed that it raised serious problems for FINRA because of its potential to create the perception that regulated entities had the power to improperly intimidate regulatory staff. In fact, FINRA's Management Compensation Committee is composed entirely of public board members for this reason—so that industry governors cannot make recommendations regarding compensation of regulatory staff.
On the proposal to have an independent study of current and/or former FINRA officer and director involvement with the Madoff Family, the Board believes this issue was fully addressed by its Special Review Committee last year, which concluded that no staff relationships with the Madoff family influenced FINRA's regulatory efforts.
Regarding the proposal to disclose IRS correspondence about the $35,000 NASD member payment, the Board decided that it would not be in the interests of the organization to release the letter, since the information sought is under seal by a federal court. It is important to note that all Board members were thoroughly briefed about the correspondence from counsel before reaching this determination.
The fourth proposal, which requested the creation and employment of an independent, private-sector inspector general, was rejected by the Board due to the fact that FINRA already has its regulatory operations independently reviewed by a number of entities. FINRA is subject to comprehensive, regular oversight by various divisions of the SEC. Additionally, within FINRA there already exist two offices, Internal Audit and the Office of the Ombudsman, which provide the types of review contemplated in the proposal.
Please know that I am committed to enhancing FINRA's transparency with firms. To that end, I will continue to update you on key FINRA initiatives and other regulatory matters after each Board of Governors' meeting and sooner if events warrant.
Richard G. Ketchum
Chairman and CEO
FINRA BOARD OF GOVERNORS
Rulemaking Items Discussed at the September 2010 Meeting