PODCAST
Robert Cook on FINRA Forward, and More
At FINRA’s annual conference on May 13, 2025, President and CEO Robert Cook discusses the FINRA Forward initiative and other topics of interest to FINRA member firms and other stakeholders, in conversation with Kayte Toczylowski, VP, Member Relations and Education.
Resources mentioned in this episode:
FINRA Forward—New Initiatives to Support Members, Markets, and the Investors They Serve
Request for Comment on Capital Formation Rules, Guidance and Processes
Request for Comment on Modern Workplace Rules, Guidance and Processes
Request for Comment on Associated Persons’ Outside Activities
Statement to Correct Misinformation About Outside Activities Proposal
Broad Review to Modernize Rules Regarding Member Firms and Associated Persons
Proposed Rule Change to Modify the Implementation Schedule Regarding Corporate Financing Fees
Proposed Rule Change on Transaction Reporting
FULL TRANSCRIPT
0:01 – 0:40
Ray Pellecchia: FINRA member firms are changing. The markets and investors are changing. And FINRA is changing as well. Every moment brings its own challenges and opportunities. What is FINRA doing to meet this moment, to meet these challenges and opportunities? That's what our President and CEO Robert Cook talked about on stage at our 2025 annual conference on May 13th. You'll hear what's behind all of those changes and much more on this episode of FINRA Unscripted.
0:41 - 01:46
Ray Pellecchia: Welcome to FINRA Unscripted. I'm your host, Ray Pellecchia. Today, we're bringing you a wide-ranging conversation in which Robert Cook spoke with Kayte Toczylowski, our head of Member Relations and Education, at our annual conference. They discussed what's coming up with FINRA Forward, our initiative to modernize our rules, empower member firm compliance programs, and enhance our efforts to battle fraud and cyber threats. They also previewed the upcoming rebate to member firms and a pause on corporate financing fees. They touched on constitutional challenges to FINRA, and throughout, Robert emphasized the importance of input from member firms and other stakeholders on a number of rule changes regarding such issues as outside business activities and private securities transactions, timeframes for reporting transactions to TRACE, and requirements for reporting securities lending. And now, here is that conversation between Robert and Kayte.
01:47 - 01:50
Kayte Toczylowski: All right, Robert, thank you so much for being here.
01:50 - 02:07
Robert Cook: Well, thank you. Thank you to everyone being here and everyone joining us virtually. And Kayte, you just thanked a bunch of people who helped make this happen. But I want to take a moment to thank you and your team. These folks work all year long so that we can come together and have a great conference and learn a lot. So can you please join me in giving them a warm thank you.
02:11 - 02:29
Kayte Toczylowski: Thank you so much, Robert. So I want to get started in talking about FINRA Forward and that initiative. Since you've come to FINRA, you've been very focused on continuous improvement. So can you kick us off in starting to talk about how that philosophy helped inform the FINRA Forward initiative?
02:29 - 03:03
Robert Cook: Well, sure. And you mentioned it at your intro remarks. This industry is all about change. Constant change. Member firms are changing. Markets are changing. Investors are changing. So we have to change as well. And as you know, change is the only constant. Right. So that change has to be continuous. And we did have an initiative a number of years ago, FINRA360, where we implemented a lot of changes—organizational, technology, process. And we're still actually working through some of the impacts of those changes. But every moment brings its own challenges and its own opportunities.
03:03 - 03:38
Robert Cook: And this is a moment, we think, to surge again, and to think about how we can redirect our energy on being the best SRO that we can be, the best membership organization that we can be. And I'd say there are two things that I think about, in what will make FINRA Forward successful. One is the membership. We need your help. We need your input, your guidance. The initiatives that we're going to be talking about at this conference can be the beginning. But they really were informed by conversations with our advisory committees, our board, about where should we be focusing our energy at this moment.
03:38 - 04:15
Robert Cook: But there's going to be opportunities for ongoing engagement and input from our members. And the second thing I'd say is we really want to focus on how do we support our members in serving investors and markets. So our membership is an amazing group of firms, incredible diversity of business models, but they share in common that they're really providing an incredibly important service to investors—families seeking to build wealth plan for their future—to issuers and entrepreneurs seeking to raise capital, to innovate; and to markets and making them efficient and fair.
04:15 - 04:49
Robert Cook: And so the role that we can play, the value that we can add, is really by enabling our member firms to better serve investors. And I think we want to bring that prism to how we think about some of the initiatives that we're bringing forward, recognize the value that the members provide our economy, our country, and recognize that we can help support that. And that includes providing rules of the road and compliance resources and the like. We'll talk more about some of that stuff. We know our members want to get it right and want to serve their investors. How can we help?
04:50 - 05:08
Kayte Toczylowski: Great. I know there's a few different initiatives that FINRA Forward is focused on, so let's drill down a little bit into all three; on modernizing regulation, empowering compliance, protecting investors. So how are you implementing those? And how will they work in practice?
05:08 - 05:45
Robert Cook: Sure. And I think you're going to be hearing more about this throughout the conference. So I'll try not to go too deep on these, even though I could sit here and talk all day about it (as Katie warned me not to). But first, modernizing our rules. Our rulebook needs constant care and attention. We do have a retrospective rule review process that we use to look at rules a bit on the books. That kind of goes rule by rule. But we thought this was an opportunity to really step back and open up the rule book to look at what areas should we focus on that are going to matter most to members. The markets change, investor behavior changes, business practices change, technology changes.
05:45 - 06:17
Robert Cook: All these things may inform areas of the rulebook that may be out of date. And we want to look at that. Now this is a big undertaking in the sense of there's so many different parts of our rulebook that people might want us to focus on, and we're going to have to prioritize. And so we're also looking for members to help us think about of all the things that we could do. What's the most important things that we should focus on first? So we issued a number of notices on this. One was just sort of general notice. Another was focused on capital formation and our rules around capital formation. What could we do in that space?
06:17 – 07:18
Robert Cook: And a third was around the modern workplace, as we call it. It's really sort of stepping back and recognizing that many of the rules on our books were written when the workplace was a brick-and-mortar concept. That's how you worked with your colleagues, where you interacted with your customers. That's not the case anymore. There are lots of different aspects of how business practices, technology have enabled modernization in how work gets done. And we want to make sure the rulebook is aligned with that. And some of this isn't just about FINRA rules, I should say. There are, for example, SEC rules that may be in play here, and we're not going to be able to change those on our own. But through this information gathering process, we might be able to help develop ideas that we can offer them about where their rules and ours intersect. And what we might propose that we could do to get that lined up going forward. We extended the comment period on that set of rulemaking, even though we're anxious to move forward on it. Member firms asked for more time, and we're happy to give that, because it was more important that we really give people a chance to respond.
07:18 - 08:39
Robert Cook: How do we empower compliance? It's a very intentional language. How do we help member firms comply with the rules? You're at the front lines of serving investors, of protecting investors. You have a job to make sure that you're conducting supervision and compliance oversight. We have a job to make sure that we're checking that. But we also have a responsibility to make sure we're doing a good job of the checking and not being overly burdensome in how we do it. So there are multiple components to this. One is enhancing the resources we provide, like this conference and other similar occasions. That cyber tabletop exercise that was done yesterday. And a bunch of other things member firms have said, you know, some of those compliance tools, templates and the like—they're helpful. Give us more. We want to give more. Help us figure out what more we should do there. Second, there's something we call the feedback loop, where we learn something from some firms or a site that might be relevant to other firms. How do we get that information over to the other firms so they benefit from it? They can hear it in advance. They can get ahead of issues. And then the third is looking more internally at the nature of how we conduct our oversight programs to make sure we're not imposing unnecessary burdens on firms and how we go about doing that. Data requests that may be beyond what we should be asking for, or other procedural things that may impose unnecessary burdens and really focus on making that program risk based.
08:39 - 09:00
Robert Cook: And then the third is around enhancing cyber and fraud protection. This is an area where I don't know of a bigger issue for the industry right now. Our member firms are victims. Their investors are victims. We need to partner on this with you, with other regulators, to really take an all-hands-on-deck approach to figuring out how to fight these challenges. And there's a lot rolling out there and right after this session, Greg [Ruppert] and team are going to come on and talk about some of that. So I'll stop there and not steal their thunder.
09:08 - 09:56
Kayte Toczylowski: Great preview of the next session. So you talked about the regulatory notices that we recently published, soliciting firm feedback on the rules that we should be focused on to modernize. As we were publishing those notices, we had one on the outside activities rule. And I know that is something I think we may have actually talked about last year at this time. And I know there's been a lot of interest in how FINRA is changing that rule. Unfortunately, in the media recently, that rule was miscategorized in certain ways and did not accurately represent what this rule is trying to do. So I'm hoping we can spend just a couple minutes while we have you up here to set the record straight on what this proposal is all about, what it does, and maybe more importantly, what it doesn't do.
09:57 - 10:36
Robert Cook: So this Outside Activity Rule, as it's now being called, is really a proposal to combine the Outside Business Activities rule and the Private Securities Transaction Rule. Those of you who are in the industry and live with that, you're very familiar with them and you know that this is something we've been working on for quite some time. Yes, I'm sure we talked about it at the annual conference and perhaps the one before. And I'm just so glad that right now we're not saying, well, we'll get to it soon. Right? I'm really glad that we've been able to bring forward this proposal, and that it really reflects the great input we received from member firms. And I think there were difficult parts of our original proposal, but there were parts of our original proposal that there seemed to be broad consensus on.
10:36 - 11:12
Robert Cook: And it is those parts that we have now proposed. I think the comment period ended today or this week. If it's today, then this week's good. You can submit it this week because we do want to hear from people. So basically, what this is doing is trying to simplify a complicated area. That's been the source of a lot of compliance overhead where the firms have told us, and we agree, it's not the best use of their resources and time to be administering certain types of oversight of outside activities—Uber driving or being on the PTA, or things that really are not investment related at all.
11:13 - 11:51
Robert Cook: The apocryphal story that came up during our discussion of this was goat herding. Apparently someone had that as an outside activity. A real example. Not making that up, but do we really need to be supervising that? No. So this is an attempt to simplify the focus of the rule on outside investment related activities that might be relevant to the firm, its oversight of the individual and the investors with whom the individual is interacting. So there's a lot to the rule, but it really is a simplification and focus on what's important and get rid of the white noise that's in the rule.
11:51 – 13:13
Robert Cook: There were some comments; I don't know where they came from. It's a little bit like opposite day that my kids used to play on me, where they sort of tell me I said the opposite of what I just said, and they thought that was really funny. In this case, there was a comment about how we were increasing burdens. There really isn't anything in this rule that adds to the existing requirements. It's mostly about scaling it back. The second thing that I think came up was there were these comments about how you'd have to go get approval if you wanted to buy a vacation home or, you know, open a bank account or buy a Bitcoin. And like, no—opposite—it's very clear in this rule that none of those things would be covered. In fact, there's some specific exclusions around things like buying a home, which can be problematic in today's rule when people want to buy some real estate. Those of you who've been in that situation know we don't really need to be supervising that. And then there was some suggestion that we were increasing the obligations of firms to oversee the outside investment advisor activities of their registered reps. That's the area that I mentioned earlier that was complex and was contentious when we first proposed these revisions. We're not proposing to do anything on that for now. So it's status quo. We do, however, ask for comments and look forward to hearing back where the industry is now on those issues and the pros and cons of continuing to require supervision in that space.
13:14 - 13:16
Kayte Toczylowski: Thank you. I appreciate the clarity there.
13:17:11 - 13:24:03
Robert Cook: There's a statement on this on the website. So if you want to track what I just said it's on the FINRA website. You can find it quickly there.
13:24 - 13:41
Kayte Toczylowski: Great. Thank you. Let's switch gears a little bit. Last November, you and FINRA updated member firms on the plan to fund FINRA's mission through the rest of the decade. Some time has gone by now since that. And so are there any updates since then that members should be aware of?
13:41 - 14:53
Robert Cook: We appreciate the engagement we've had with member firms on our finances, right up to our board. You know, our board oversees our budget, oversees the fees, the expenses, primarily through the finance committee, which has been and I think will continue to be chaired by an industry governor. So they've been really focused on making sure we have sufficient resources to perform our mission, but that we're also being good stewards of the members’ funds. We talk about often how FINRA is funded by the members, not by taxpayer dollars. That's a virtue of this arrangement, but we need to be good stewards of those dollars in the board provides oversight to make sure we are. On the expense side, that's included over the last few years, things like—and we've talked about this stuff before—but we've brought in outside consultants to help us figure out how we could be more efficient in our processes. We've shrunken our real estate footprint. We've had voluntary buyouts. So these are things we've been doing over the years. And on the revenue side, what the board has focused on is responding to the member's request that when you talk about fees and any potential fee increases, you give members lots of notice and you do not slam them with a big fee increase in any one year.
14:54 - 15:30
Robert Cook: To achieve those two objectives, we have to have a longer term planning horizon. And you mentioned this five year plan. I think we had like a four year plan before, but this is intended to give the membership a line of sight into what's going on on the fee side over the next few years, as best as we can tell. Now, I don't need to tell this audience that projections aren't always accurate, and sometimes they're off. Markets and other drivers of our revenues can lead to results that are different than we anticipated. In 2023, we had a loss and we can rely on our reserves for that.
15:30 – 16:35
Robert Cook: When we have excess funds, we have a choice of banking it to defer any future fee increases or doing a rebate to the members. So in 2024, we had excess. We'll be issuing our financial report in coming months, but that will show that we had an excess during 2024. So this year the board has elected to rebate that money back, which we've done in the past, and we're going to follow the same approach that we've followed on that front in the past, which is we give every firm back the minimum contribution to FINRA. I think it's $1,200, and then we issue the rest on a pro-rata basis based on the fees paid in during 2024. I think the rebate is about $50 million. We've also been hearing from some member firms some concerns and technical issues around some increase in fees and new fees in a narrow space—but important space—in the corporate financing space. And those were scheduled to kick in in July. We're going to defer those for a bit so we can get our arms around those. So that'll be a fee filing with the SEC to seek approval to defer those fees.
16:35 - 17:25
Kayte Toczylowski: Fantastic. I'm sure there's many firms that are grateful for both of those updates. You've been talking quite a bit. And all of these answers on the importance of firm feedback. And that is really a cornerstone in FINRA's role as a self-regulatory organization and the ability to engage so closely with member firms on enhancing regulation. And I did want to give you a chance to talk about how FINRA's SRO model has been challenged in the courts. The audience might be familiar with the Alpine case decided by the D.C. Circuit last November, where we saw a challenge to the constitutionality of FINRA's regulatory structure. So there are still cases ongoing. So I know that you might be limited in what you can talk about today, but how is this litigation affecting FINRA's day to day?
17:26 - 18:29
Robert Cook: Well, the answer is: not really. I've learned a lot about constitutional law I never thought I'd have to learn in this role. It's fascinating. You know, FINRA has been around for 85 years, and constitutional challenges are not new. They come up every now and then. There's a lot of precedent on this that supports the SRO model. It doesn't just impact FINRA, it impacts the exchanges. It impacts the clearing agencies. And we're grateful for some of the support they've all given us in arguing our case here. There was the case in the D.C. Circuit with Alpine. Basically, what that case held was that in an expedited proceeding, we cannot expel a firm without the SEC first having a chance to weigh in on that. The court did not stop the case and did not address any of the other constitutional issues. It just said that the SEC needs to weigh in, and we can live with that. That affects a very, very small part of our oversight work. So as I said, we can live with it. Apparently the other side can't, because they've appealed it to the Supreme Court, and now it's pending there to see if they want to take it up.
[Editor’s Note: Weeks after these remarks—on June 2, 2025—the Supreme Court denied Alpine Securities’ request to review the D.C. Circuit Court of Appeal’s November 2024 decision in Alpine v. FINRA.]
18:29 - 19:35
Robert Cook: But in the meantime, I think we're going to continue doing our business and thinking about how we can be better at what we do and make changes where we think it's appropriate. And at the end of the day, on these issues, there's all the law, which I think we're confident in our position on. We're grateful for the support we've gotten on that front. But ultimately, there's the policy of what should an SRO do and how should it do it? And that's where I want to be engaging with the members, because it really is up to the members. Do you want to have this type of regulatory framework where you can engage with a regulator—FINRA—the way we do? And the question for us internally at FINRA is: are we living up to that opportunity? And that's part of what FINRA Forward is. Let's think about, hey, what is unique? What do we do that's unique? How do we do our work in a way that's different from the government—really? And then, are we actually doing it that way? That's how I think about these issues at the moment. Let's lean in and make sure we're doing a good job of what they thought would be the appropriate structure 85 years ago, and what they've continued to affirm over the years as this issue has come up.
19:35 - 19:42
Kayte Toczylowski: Great. Thank you. I think we have time for just about one more question, just about a minute and a half or so, but I wanted to give you an opportunity. You've been busy writing lots of blogs, which I think have been very helpful to the industry. I know in my conversations with firms, they have been. Back in January, you wrote a blog about how you had instructed FINRA staff to seek an extension of implementation for the SEC’s securities lending rule, and then you wrote another blog soon after that talking about instead of that, FINRA would be making a new filing with substantive changes. So what have you called for in these changes, and what's the status of those updates?
20:13 - 20:53
Robert Cook: There's actually two rules that we covered in some of the early blogs. There's the SEC’s securities lending rule. It's been challenged in court. But in the meantime, it's not been stayed. So we have an obligation to do what the rule mandates that we do, which is to build a reporting system and to help the industry get ready to report securities lending transactions. The deadline for starting up the system is January 2nd of 2026. That's not a great time to launch a new reporting system or a large technology system. So we asked the SEC, and we've now since formally requested it based on consultation with the industry, that that be deferred for nine months until September of 2026.
20:53 - 21:20
Robert Cook: Separately, there are some aspects of the securities lending reporting regime that we think, as defined by the SEC rule, could be improved upon, and there's some clarity that needs to be brought. So we're working with the industry to put together a second letter to talk about and potentially ask for relief from the SEC, or guidance on aspects of how the securities lending program would work. Until someone tells us we don't have to do this rule, that's what we're working on, because that's what's on the books.
21:20 – 22:01
Robert Cook: Separately, there is the completely different trade reporting issue around TRACE. Some of you might remember there was a rule that we and MSRB were working on last year to reduce timeframes for that. That's the one where we said we're not going to move forward with it. We're going to step back and look at where we are on it. And I think you should be seeing a revised filing from us, and we're working closely with the MSRB. I can't speak for them, but I think from them as well, to basically step back from that rule and look at what are some of the existing challenges in reporting trades more timely, and how can we take a much more incremental approach to mandating any shorter time frames there? So that should be showing up as a rule filing relatively soon.
[Editor’s note: FINRA subsequently submitted the rule proposal regarding TRACE reporting timeframes.]
22:01:14 - 22:05:17
Kayte Toczylowski: Great. Thank you and stay tuned for more blogs. Helpful information.
22:06 - 22:29
Ray Pellecchia: That's it for today's episode of FINRA Unscripted. Listeners, if you don't already, please be sure to subscribe to FINRA Unscripted wherever you listen to podcasts. All of the resources mentioned in today's podcast will be included on the home page for the podcast episode. Today's episode was produced by me, Ray Pellecchia, and engineered by John Williams. Until next time.
22:34 - 23:02
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