CCOutreach BD National Seminar
March 7, 2008
Thank you so much Lori for that kind introduction, and thank you, Mr. Chairman, for hosting this important program. I am thrilled to be here. And I want to add my welcome to Lori's and Chairman Cox's.
Chairman Cox, your leadership in bringing together all of us who, in one way or another, are devoted to promoting the highest standards of conduct in financial services, is unique and we owe you and Lori and the SEC staff our thanks.
Building bridges between firms and regulators is what this conference is all about. A fair marketplace can only be maintained when there is a strong partnership between the SEC, FINRA and the compliance community.
But building bridges is not an easy task. It's one that takes hard work and commitment.
Seventy-five years ago they broke ground on the Golden Gate Bridge. This daunting project took four years, 10 contractors, $35 million and 11 men's lives.
When the bridge was completed, the chief engineer of the project, a man named Joseph Strauss, wrote a poem. The poem's title is "The Mighty Task is Done."
Strauss paid tribute to all the workers who toiled day in and day out—who sacrificed so much of themselves to serve the greater community.
In the poem, Strauss called the work they did "an Honored cause." And I can think of no better phrase to describe the work you do.
Because while our system needs regulators, none of us can be everywhere, at every moment when customers and the markets—interact-when brokers make a sale or when investors log on to a web site, when products are designed or marketing materials are produced.
But, in a sense, you are. It's no exaggeration to say that all of you in this room are the first line of defense. If compliance isn't working at the firm level, our system won't work no matter what the regulators do.
One of the most important things we can do as regulators is keep the lines of communication between us open, providing support and guidance. I want you to know we're committed to doing that—and it's why we're here today.
We regulators can write rules, conduct examinations, and bring cases, but it's you, in the firms, on the ground, who carry the lion's share of the regulation of the industry.
You see what goes on day to day and can spot small problems before they become large ones. You're the ones who develop specific practices and policies from our rules and guidance, to make regulation work in concert with your business, not against it.
And because of you, we have made progress in fostering a culture of compliance.
Today, in many firms, management has come to understand that compliance is not just a cost—rather it's an integral part of a successful business model.
They realize compliance can't be something that a firm maneuvers around—it has to be at the core of product design, business processes and day-to-day operations.
I think Chairman Cox did a great job talking about this need for a culture of compliance and I agree with him wholeheartedly.
So this morning, I'd like to provide a very brief update on the progress of our ongoing integration of NASD and NYSE operations—with a focus on the rulebook.
As you know, FINRA came into existence just seven months ago. For the first time, a single self-regulatory organization has the complete picture of the largest firms' operations—including financial, operational, risk and sales practices.
The integration is ongoing, but we have made significant progress.
The transformation of FINRA's enforcement department is now complete and our integrated exam program is also up and running. We will continue our efforts to make exams more risk-based in order to best deploy our resources in the furtherance of investor protection and market integrity.
We also expect to have our full suite of technology applications integrated within 24 months, with most completed within 12 months.
As we continue the process of selecting the technologies that best support our new business processes, we will be sensitive to the time and effort that firms need to make changes to systems that impact you.
But at the heart of the consolidation is the new, single rulebook.
The process for merging two rulebooks that govern the entire, diverse industry is a complex one and it will take some time, but again, we have made significant progress.
Our staff has conducted a comprehensive review of the legacy NASD and NYSE rules and categorized them into three groups: rules that can move into the FINRA rulebook largely unchanged, such as procedural and marketplace rules; rules that are obsolete or duplicative and which we will recommend eliminating; and rules that would benefit from being revised and rewritten.
There are five guiding principles for the rulebook consolidation process.
First, FINRA is committed to not only picking the best of the legacy NASD and NYSE rules, but it is also going through a very deliberative process to determine if there might be a better way to address regulatory concerns than simply picking between two existing rules.
Second, we aim to tier some rules according to firm size, business model or type of customer. The diversity of firms, in terms of size and business model, cries out for a more tailored approach to regulation, consistent with investor protection.
Third, we are regrouping rules along similar subject matter lines in order to make finding rules a more intuitive process and provide firms with a better understanding of the regulatory scheme for each area of regulation.
Fourth, we will, where needed, re-write rules to make them as clear as possible. Compliance is challenging enough without perpetuating rules that are hard to understand.
Fifth, FINRA is carefully considering areas where a more principles-based approach might be appropriate. We certainly aren't going to exchange all rules for broad-based principles—keep in mind that the FSA's 11 core principles are backed up by more than 8,000 pages of rules—but we are carefully exploring those areas where a more principled approach may be appropriate.
I encourage you, through the comment process, to help us understand the practical implications of rule proposals. Your participation will be an integral part of building those bridges between the SEC, FINRA and compliance officers.
Let me close there and leave you with a final thought.
I really urge you—as I have done for the past 20 years—to use your positions to build the spirit of compliance throughout your firms.
Markets are built on the trust of investors. No longer do the markets represent the playground of the privileged.
Today, they hold the nest egg of the average worker—whose financial security depends on them being treated fairly.
That's our "mighty task"—to borrow that phrase from Joseph Strauss' poem. It's not always an easy task, but we want to be your partners in building a marketplace where investors can prosper.
And though, unlike building the Golden Gate Bridge, our task is never quite done—your work will always remain "an Honored cause." Please continue that good work and know we are here to work alongside you.
Thank you for coming today.