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PODCAST

2021 Small Firm Conference: A Fireside Chat with Robert Cook and Greg Ruppert

November 16, 2021

The small firm community, those firms with 150 or fewer registered financial professionals, came together in October to discuss and engage on key areas of concern at the Small Firm Conference.

On this episode, we're taking you behind the scenes of this year's event with an abridged look at the fireside chat with FINRA CEO Robert Cook and Executive Vice President Greg Ruppert, moderated by FINRA's head of Member Relations Kayte Toczylowski.

Resources mentioned in this episode:

Trusted Contact Resources

Racial Justice Task Force

2021 Report on FINRA’s Examination and Risk Monitoring Program

Cybersecurity Resources

Listen and subscribe to our podcast on Apple Podcasts, Spotify or where ever you listen to your podcasts. Below is a transcript of the episode. Transcripts are generated using a combination of speech recognition software and human editors and may contain errors. Please check the corresponding audio before quoting in print. 

FULL TRANSCRIPT 

00:00 – 00:27

Kaitlyn Kiernan: The small firm community, those firms with 150 or fewer registered financial professionals, came together in October to discuss and engage on key areas of concern at the Small Firm Conference. On this episode, we're taking you behind the scenes of this year's event with an abridged look at the fireside chat with FINRA CEO Robert Cook and Executive Vice President Greg Ruppert, moderated by FINRA's head of Member Relations Kayte Toczylowski.

00:27 – 00:37

Intro Music

00:37 - 01:37

Kayte Toczylowski: I am thrilled to welcome FINRA's president and CEO Robert Cook and Executive Vice President Greg Ruppert to our virtual stage to kick off today's conference. As I'm sure you all know, Greg currently leads Member Supervision's National Cause and Financial Crimes programs. However, in just a few days on November 1st, Greg will be assuming leadership of FINRA's Member Supervision program as Bari Havlik retires at the end of the year. Robert and Greg, thank you so much for being with us this morning.

And Greg, congratulations on this new role! You're bringing with you such a wide range of experience as you assume your new responsibilities, from the FBI and your work on cybercrimes to your work in the industry at Schwab prior to joining FINRA. So, let's start with you. How have these experiences shaped how you think about FINRA's mission and operations? And given our audience today, what do you want our small firms to know about you as you take on leading Member Supervision?

01:37 - 04:49

Greg Ruppert: Well, great. Thank you for the congratulations and thank you for having me and thank you everybody for attending this conference. As I look back over my career, I was fortunate enough to get really involved in a mission-driven organization from the beginning. So, coming out of law school, joined the FBI, was sworn in as a special agent in the mid-nineties and really joined the FBI to follow a passion around the securities industry. And something I had learned in law school, worked as an intern at the SEC, and I was just passionate not only about the markets, but also about the industry that surrounds those markets. What I took away from my time in that space was really about how important working together against kind of the threats that we're seeing and the key issues.

2014 - even though I wasn't expecting to leave the FBI, I received a call out of the blue from Charles Schwab that was looking to expand their financial crimes program, specifically around the fraud and AML space, and just saw that as a huge opportunity to get back to what I was really passionate about--being more closely aligned in the securities industry. So, jumped and took that opportunity to go there to learn about how a firm actually engages in the operationalizing of all of the protective measures that are set out, the regulations and the rules that we ask of them. And so, I think that's given me a unique perspective of understanding the complexity of how things need to happen from the inside and then the complexity of leveraging the tools and information and intelligence a firm has across their business lines against the threats that they're seeing, but then also interacting with the regulator. As you can imagine being the Bank Secrecy Act Officer, the BSA officer for AML, also having the fraud programs, and then later I took on building out the conduct program. I was probably one of the most examined programs in the entire firm and we had a whole host of regulators. So, I got to see different approaches as well as interact with FINRA during that time frame. I was also on the district committee for almost three years, right before I came to FINRA, so got some exposure in that aspect as well.

As you noted, I've been FINRA for the past year and a half with the NCFC, the National Cause and Financial Crimes programs, and that role has really enlightened me on all of the intelligence that FINRA possesses, the expertise and what we're able to leverage in order to protect and inform our member firms. So hopefully, those in the attendance today have seen regulatory notices coming out around cyber threats, around fraud threats all through the pandemic. Other issues that we were seeing. And so, trying to take that knowledge and pay it forward as fast as we can to protect all of the firms that we have within our membership has been a key priority of mine. And it's something that will obviously continue to do.

So, with all of those items that I've learned when each stage of my career, I'm hoping to bring forward that into the new role, focusing on partnership, leveraging technology and the cyber aspects of what we're able to learn and take from our intelligence and pay that forward back in that same loop of design around partnership and collaboration in order to make everyone better.

04:50 - 05:03

Kayte Toczylowski: That's great. I'm sure our small firms feel like they know a little bit more about you now. Robert, it sounds like you have such an incredible partner in Greg in this role. How are you seeing this transition?

05:03 - 06:13

Robert Cook: Well, thanks, Kayte. First, let me just thank you and your team for organizing this great conference. It's one of my favorite conferences of the year. And thank you to all the member firms who are taking the time to join us. We really appreciate it.

And I just wanted to take a moment to acknowledge our gratitude for everything that Bari accomplished during her leadership of Member Supervision, the integration of the exam programs, the creation of the firm groupings, extensive process improvements. It's really a remarkable set of achievements that she was able to do during her time with us. And on top of all that, we're very grateful for her focus on developing a strong senior leadership team within Member Supervision, and part of that is a very pleased to have in Greg a great successor who's able to continue building on all of Bari's hard work and success and continuing in the same direction as we've been going with respect to Member Supervision.

And as Greg officially transitions into the new role, I know he, just like me, looks forward to continuing to benefit from Bari's advice and insights with respect to planning for the future of Member Supervision and our oversight of firms more generally.

06:14 - 06:27

Kayte Toczylowski: Fantastic. Thanks, Robert. So, Greg talking about you assuming this new role as head of Member Supervision. What are your areas of focus? Can firms expect more changes related to transformation?

06:27 - 08:09

Greg Ruppert: Yes, I think that's the million-dollar question. And I’m here to calm everybody down, I've been ensconced in all of the transformation changes, the rationale around it and the iterative process as we continue down that path. I liked the approach from the firm perspective and sitting on the district committee when I was hearing the presentation seeking feedback. I loved the shift in mindset that came with that. And so, part of what brought me to FINRA was that exact transformation in and of itself. So not seeking to undo any aspect of the transformation, will continue moving forward, and we're hoping that the transition is seen by everybody as seamless.

I would expect that you would, in a small firm, continue to be able to look for is the quality of products that we're putting out, our ways of communicating with you and our desire to hear from you and be a partner if and when we can, but also where we can further benefit you from additional products and services that we have to offer. If I look even across my current role over the past year in the cyber space, that is not only a key risk that we're all facing, not just small firms, not just the securities industry, not just US industry. It's a global problem that we're looking at from the threats that we're all facing. We've been focused on how do we deliver the most amount of content and information to make everybody better in this space? Cyber, I think, is going to be a key risk area.

We're going to continue to focus on Reg BI and then other areas where we're focusing on investor protection as well as market integrity as we see the landscape shift throughout the markets and throughout what we're seeing in our day to day lives.

08:10 - 08:29

Kayte Toczylowski: Thank you so much. All right. Let's switch gears a little bit and dive into diversity, equity and inclusion. Robert, I know that this is a cause that you've been focused on, so I was hoping you could take this opportunity to tell us how FINRA is addressing diversity and inclusivity in the financial services industry?

08:30 - 11:20

Robert Cook: Well, thanks, Kayte. Really appreciate the opportunity to talk about something that I care deeply about and as does the whole senior management team here at FINRA. We established a Racial Justice Task Force last year that has worked on taking the next step in our journey here. We have had a very strong diversity and inclusion program for a long time. We have our annual Diversity Summit. We just had our ninth annual summit, which is terrific.

We've had a lot of great initiatives, but we really wanted to take the opportunity to think about what more we could do with a focus both within FINRA, in the communities we serve and in the industry. And so, there are a whole bunch of different elements of what that task force has been helping to guide us on. And I'll just mention a couple really briefly.

One is that we released a regulatory notice requesting comment from all of our stakeholders about any unintended barriers that might be present in our rules and processes that could inhibit greater diversity and inclusion in the industry. And we received some really wonderful, thoughtful comments, and we're working through those and thinking about next steps. One comment that I want the staff to focus on in particular, among others, there's a comment about how the information we collect from people who are coming into the industry might have unintended consequences that disproportionately impact underrepresented groups, especially around financial and non-conviction criminal disclosures. So, we're going to be looking at that, but that would require close collaboration with our regulatory partners to make any changes there, at the SEC and the states, but we look forward to that dialogue.

Another initiative we've been undertaking to help create opportunity within the industry for more people to launch their careers here is the Securities Industry Essentials exam, which launched in 2018. As most people here probably know, you used to have to be associated with a member firm in order to take our qualification exams. Anyone, however, can take the SIE exam to start their career journey and demonstrate their knowledge and interest and aptitude for working in this industry and then having passed that exam take that to potential employers. So far, almost 300,000 candidates have enrolled to take that test, and almost two thirds of them were not affiliated with a member firm at the time that they enrolled.

So, we're going to continue to work with other partners to make sure that raise awareness around the SIE. We've got a program on outreach to HBCUs and other organizations to help expand the pool of diverse candidates. We have a pilot program to distribute exam vouchers, for example, to some institutions to give to their students to encourage them to take the exam. So, a lot going on in a space,

Kayte, we really could spend the whole time talking about it. We do have some information on our website, and I'm really pleased by all the different activities we have going on here now, and we've got a lot more work to do, so we're going to keep at it.

11:21 - 11:42

Kayte Toczylowski: Thank you so much for that great update. Robert, you just mentioned a bit about what we're doing to look at barriers that might be causing folks difficulty in entering the financial industry, which I think is somewhat related to some recent changes to FINRA's Continuing Education Rule, Rule 1240. Can you talk a little bit about those recent changes?

11:42 - 13:31

Robert Cook: Sure. And I'm really excited about these, and this is a great story of collaboration between the regulatory community and the membership led by our Continuing Education council and other key stakeholders. There was a rule change that was recently approved by the SEC and there are two key elements here.

One is that we're moving an annual requirement for CE. We went to having the CE online in 2015, we created the opportunity for more flexible content to be delivered on a more up to date basis. Now, going forward is going to be better able to tailor the content to the registered person's specific role and responsibilities and make it more timely content.

But another part of this change that I think ties into what we were just talking about is the change that would allow people to maintain their qualification, we call it the Maintaining Qualifications Program. They could maintain their qualifications for up to five years after terminating their registration, and they would do that by participating in the annual continuing education. And then you'd be able to come back into the industry without having to take the exam again. This is really based on a lot of great feedback from member firms. It's another area where we see comment on our diversity and inclusion requests for comment about things we could do to help promote greater diversity in the industry. People have life events that come up. They need to take time to step away from the industry, to care for an elderly parent or a child or whatever. And having to take the tests to come back in is a barrier to continuing to be in the industry.

So, we're really excited about rolling this out. We'll be issuing a regulatory notice in the coming weeks with more details. We expect that this Maintaining Qualifications program will be rolled out in March of next year and that the annual CE requirement will become effective in January of 2023. So more to come on that front.

13:32 - 13:49

Kayte Toczylowski: Our attendees are very interested in what they can expect in 2022 and some questions around the report on FINRA's examination and risk monitoring program. So, is there anything that you can preview for our small firms, any new emerging trends or issues that they should be aware of?

13:50 - 16:07

Greg Ruppert: Yes, so I checked today. We are on track to be able to publish that firm report in early January. And it will continue to have the emerging risks portion that we included last year.

And I think if you pour over that and looked at what we called out as potential emerging risks, you also saw throughout the year various activities that we did specifically related to addressing those threats. So, everything from additional regulatory notices as well as we embarked on a number of sweeps during the year, specifically around options, SPACs as well as finfluencers. So, there'll be a series of ways that we'll be able to communicate with you, not only just waiting for that report to come out, but I urge everyone to make sure that they are actively looking at the various reg notices that we put out. As I mentioned, cyber being a key area.

One example I'd just love to call out is that we've actually hired an investigator from a small firm cyber team to be on our cyber and tech specialty unit. And so, we have that expertise as well as an understanding, and that person actually looks at the reg notices from the perspective of how does a small firm react to something like this? And do we have enough actionable intelligence as well as suggested steps of things that can be done if that firm is experiencing that same level of threat? We'll continue to do a number of the bootcamps, various venues where we're able to bring expertise to you in regard to certain topics.

So, the AML act that was recently passed by Congress is going to bring a host of SAR filing requirements over the next couple of years related to specific threats related to our industry, but also a prioritization that has come out from FinCEN. So, we'll be working to connect the experts within law enforcement and our firms and do a similar approach with the cyber threats that we're seeing since those are also coming on a relatively regular cadence.

So, I'd say stay tuned for 2022, where we'll be able to educate you even more than we've done in the past two years and then leverage the expertise we have internally combined with the regulatory intelligence that we're able to collect and be able to provide you with as much actionable intelligence that we possibly can.

16:08 - 16:37

Kayte Toczylowski: Now, Robert, there's another resource that FINRA recently published that I want to make sure our small firm attendees are aware of. So recently, FINRA, NASAA and in the SEC Office of Investor Education and Advocacy issued a new resource on trusted contacts. This concept of trusted contacts is not new. It was introduced back in 2018. But can you give us an overview of this new resource and why we decided to issue more guidance now?

16:38 - 19:39

Robert Cook: Yeah, of course Kayte and I appreciate the opportunity to address this. So, of course, protecting senior and vulnerable investors is critical for all of us. We all care about it. FINRA has been very focused on this area. We created the senior help line and have been trying to provide other resources to the investor community and to member firms to help try to navigate some of the challenging issues that can come up in this space.

And as you mentioned, back in 2018, there were two FINRA rules that took effect that we worked on closely with member firms to help design them, and they were intended to help empower firms to prevent financial exploitation of seniors. These included the first uniform national set of standards to protect seniors. And part of that is that we require firms to ask customers if they would like to add a trusted contact to their accounts. This would be an additional point of contact that can help a firm protect investors in a variety of situations.

And what we heard from a lot of our member firms is that they needed some resources to help investors understand what is the role of a trusted contact and what are the benefits of providing a trusted contact. And so, this set of resources is something that reflects a coordination between FINRA, NASAA, the organization of State securities administrators, and the SEC's Office of Investor Education and Advocacy. So, it was launched last month responding to that feedback by providing a variety of new resources to help firms engage with their customers on this topic to help explain why you might be asking for a trusted contact. And so, there's a new web page, there's an infographic, there's a video, and all these explain that adding a trusted contact is just providing another layer of security to add to the customer's account, and importantly, clarifying that the trusted contact cannot make trades or decisions for the investor's account.

So, we really hope that these materials will be responsive to the feedback we've heard from member firms, will help them engage with their clients as they discuss the importance of providing a trusted contact and in that sense, result in additional investors adding trusted contacts to their investment accounts and firms having the ability to use that resource, if necessary, to help protect their customers.

So, we're just so grateful for the feedback we receive from members. I know again, we all share this goal of protecting seniors and vulnerable investors. This is one of the many strengths of the SRO model, and we certainly want to continue to have an open dialogue with the industry as we work towards what more we can do in this space.

We have a couple of further rule amendments to further modify the rules that were adopted in 2018 that are currently pending with the SEC. Those also reflect a lot of feedback we collected through interviews with firms through an open comment file and the like, and we got some good feedback there from firms about how we could further help them by tweaking the rules to protect investors.

19:40 - 20:07

Kayte Toczylowski: Thanks, Robert. While we cannot have a session with the two of you and not address remote work, remote supervision. A transition from the pandemic to the new normal. So, I do want to make sure we spend a few minutes on this topic. Robert, why don't we start with you here, in light of all of the challenges posed by the pandemic, how is FINRA thinking about changes to its rulebook to adapt to whatever this new normal may look like?

20:07 - 22:40

Robert Cook: Well, thanks, Kayte. This is a question I know a lot of member firms are interested in, and we are spending significant time here at FINRA trying to work through. Things have changed, and while at least at the moment it feels like things are trending in the right direction, we know that things are not likely to go back to being just like they were before COVID, nor should they. We've learned a lot. All of us collectively about how work can be done and the opportunities for creating more flexibility for employees and for investors in terms of how they interact with employees is something I hear that a lot of our member firms are thinking about. Not all. There's just a wide variety of models out there.

And so the challenge that presents for us is how do we make sure that the way our rulebook envisions the work environment evolves as well? To put it one way, the rulebook naturally reflects sort of a brick-and-mortar concept of how work gets done. People going to an office and all the layers of requirements around supervision are built around that concept, and the pandemic really accelerated and highlighted some of the trends that were in place for quite some time in terms of finding people exploring different ways of doing their work.

So, we have been engaging with different organizations and member firms to understand this. Our advisory committees have been very helpful here, and we issued a notice to collect comment on what are some of the lessons we've learned from the pandemic and how should FINRA's rules evolve? We get some great comment back on that to highlight a couple of areas that people flagged for us.

One is the simple but important idea of eliminating wet signatures in our rulebook, and we think we've done that now. But that was something people asked us to scrub the rules and make sure that there aren't requirements to actually physically sign something that are driven by FINRA's rules.

We know that another area of significant interest has been the requirements around firms' inspections of their branches, and people will know that we've provided relief from doing that in-person for 2020 and for 2021, and in recognition of the continuing uncertainty and challenges that firms have been facing in the space, we have submitted a rule filing with the SEC to extend that temporary relief and permit remote inspections until June 30th of 2022. So, into the first half of next year, and we're going to be continuing to look at that requirement in our rulebook.

So, there's more work to be done on this Kayte, and we're looking forward to continuing to engage the membership and think about how we can provide that level of flexibility to be appropriate as we move forward.

22:40 - 22:59

Kayte Toczylowski: I want to thank both you, Robert and Greg, for taking the time out of your busy schedules to be with us today. The updates and feedback that you shared were so timely. And Greg, I'm so excited that our small firm community got to meet you, even though virtually right now. Thank you so much for being here.

23:01 - 23:21

Kaitlyn Kiernan: That's it for today's episode. If you don't already, be sure to subscribe to FINRA Unscripted wherever you listen to podcasts. If you have any ideas for future episodes, you can send us an email at [email protected] Today's episode was edited by me, Kaitlyn Kiernan, and engineered by John Williams. Until next time.

23:21 – 23:26

Outro Music

23:26 - 23:49

Disclaimer: Please note FINRA podcasts are the sole property of FINRA and the information provided is for informational and educational purposes only. The content of the podcast does not constitute any FINRA rule or amendment or interpretation to such rules. Compliance with any recommended conduct presented does not mean that a firm or person has complied with the full extent of their obligations under FINRA rules, the rules of any other SRO or securities laws. This podcast is provided as is. FINRA and its affiliates are not responsible for any human or mechanical errors or omissions. Parties may not reproduce these podcasts in any form without the express written consent of FINRA. 

23:49 - 23:59

Music Fades Out

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