"FINRA360 provides a process for carefully considered—but ambitious—changes and improvements throughout FINRA."
–FINRA President and CEO Robert W. Cook
We are conducting a comprehensive self-evaluation and organizational improvement initiative called FINRA360. The objective of this effort, which CEO Robert Cook launched in early 2017, is to ensure that FINRA is operating as the most effective self-regulatory organization (SRO) it can be, working to protect investors and promote market integrity in a manner that supports strong and vibrant capital markets.
Changes at FINRA
We are examining a range of topics and have begun making several changes to become a more effective, efficient regulator including:
Report on FINRA Examination Findings
In December 2017, we published a first-ever Report on FINRA Examination Findings to educate firms and facilitate compliance. Firms have requested to learn more about what FINRA is seeing through its examination programs more broadly as a supplement to the individual reports they currently receive following any FINRA exam. The new report summarizes key examination findings from across our programs, enabling firms to use this information to strengthen their own control environment and address any potential deficiencies before their next exam.
Review of Engagement Initiatives
In response to the March 2017 Special Notice on Engagement as part of FINRA360, FINRA received a number of comments and suggestions regarding the effectiveness of communications with and education of firms, including ways in which FINRA could enhance its engagement with member firms. After careful review of the comments and suggestions received, FINRA is taking a number of actions aimed at improvements in these areas.
- Changes to FINRA Advisory Committees: Phase 1 (11/15/17)
- Changes to Engagement Through Member Relations, Education and Compliance Resources (11/2/17)
Consolidation of Enforcement Functions
In July, we announced plans to combine two distinct enforcement teams into one unit under a new head of enforcement, Susan Schroeder, who reports directly to Robert Cook. The unified structure will improve our ability to streamline investigations and provide a more coordinated and consistent approach to oversight.
The new unit is bringing together two distinct enforcement teams within the organization – one handling disciplinary actions related to trading-based matters found through Market Regulation’s surveillance and examination programs, and the other handling cases referred from other regulatory oversight divisions including Member Regulation, Corporate Financing, the Office of Fraud Detection and Market Intelligence, and Advertising Regulation.
Innovation Outreach Initiative
In mid-2017, we established the Innovation Outreach Initiative to foster an ongoing dialogue with the securities industry that will help us better understand financial technology (FinTech) innovations and their impact on the industry. We have created a cross-departmental team led by our Office of Emerging Regulatory Issues that is responsible for carrying out the initiative and working closely with industry participants to gain real-time intelligence on FinTech issues. As part of this effort, FINRA established a new Fintech Industry Committee to facilitate discussion on FinTech developments and how FINRA’s rules and programs interact with technology innovations. FINRA will also conduct regional roundtables to provide a forum for market participants to share thoughts, ideas and concerns regarding FinTech topics. In addition, FINRA launched a new FinTech webpage and hosted a Blockchain Symposium, bringing together regulators and industry leaders to discuss the use of blockchain and the related opportunities and challenges. We are planning future FinTech-related publications and events as part of this initiative.
Capital Formation Rule Review
In April 2017, we issued regulatory notices related to the capital formation process as part of a continuing effort to modernize our regulation of those activities while maintaining important protections for investors:
- A request for comment on FINRA’s rules governing the participation of its member firms in capital raising.
- A notice seeking comment on proposed amendments to rules for underwriting arrangements.
Retrospective Rule Review
In May 2017, we issued a request for comment on FINRA rules governing outside business activities and private securities transactions. This retrospective rule review is part of a continuing effort to ensure that FINRA rules remain effective at protecting investors in an efficient manner. The review centers on rules governing broker-dealer employees’ business and securities activities carried out away from their firm – activities that are outside the regular course or scope of their employment with the firm. These rules were designed to protect investors from potentially problematic or risky activities that are unknown to the firm but could be perceived by the investing public as either part of the firm’s business or having the firm’s imprimatur. In addition, the rules protect firms from reputational or litigation risks when employees engage in business and securities activities outside of the firm.
Additional changes we have made in recent months include:
- New FINRA rules were recently approved to streamline competency exams and facilitate opportunities for professionals seeking to enter or re-enter the securities industry. The new rules revise the current exam structure to eliminate duplicative testing and barriers to demonstrating and maintaining qualifications. The changes will make it easier for an individual with no prior securities industry experience – whether an investor, a recent college graduate or a professional seeking a second career – to take a general knowledge exam (Securities Industry Essentials) as an important first step to entering the industry. Learn more here.
- The Securities Investor Protection Corporation (SIPC) and FINRA recently announced a new, simplified filing process. Effective September 1, firms that currently file annual reports separately with SIPC and FINRA will file just once, using FINRA’s existing reporting portal. This is designed to ease reporting burdens and compliance costs for member firms and will also reduce inconsistent or incomplete filing of annual audited financial statements and supplementary reports. Learn more here.
- We created a new standing committee, the Regulatory Operations Oversight Committee (ROOC), to advise and assist the Board in providing guidance and oversight to management on FINRA’s regulatory operations. The ROOC does not engage in discussions surrounding individual enforcement matters.