In Review: Looking Forward with FINRA and Board Chair Eric Noll
Each year, FINRA hosts its Annual Conference in Washington, D.C. It is an event packed full of panels with information on all the latest compliance trends and emerging regulatory issues, with a number of networking opportunities spread across the three-day event. On this episode, we're taking you behind the scenes of this year's Annual Conference to listen in on a conversation between FINRA President and CEO Robert Cook and the Chair of the FINRA Board of Governors, Eric Noll.
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00:00 - 00:26
Kaitlyn Kiernan: Each year, FINRA hosts its Annual Conference in Washington, D.C. It is an event packed full of panels with information on all the latest compliance trends and emerging regulatory issues, with a number of networking opportunities spread across the three-day event. On this episode, we're taking you behind the scenes of this year's Annual Conference to listen in on a conversation between FINRA President and CEO Robert Cook and the Chair of the FINRA Board of Governors, Eric Noll.
00:35 - 02:43
Robert Cook: Good morning, everyone. Welcome to the third and final day of the conference. So wonderful to see all of you this morning. We're going to end strong. That's right, end strong. So, one of the things we like to do at the conference is provide opportunities for you to hear from our Board of Governors. And so, a number of them are appearing on various panels. I'm intimidated by the fact that there's a table up front here with a bunch of them sitting, watching, grading me as we talk. I think they're holding up signs already—one, ten, ten, ones, but no better way to kick off the final day and to give you an opportunity to hear from our Board than have this opportunity to have a conversation with Eric Noll, who's the Chair of our Board.
So, Eric joined the Board in 2020 and became Board Chair last year in 2022, and we're very fortunate to have Eric on the Board and serving as Chair because he's had just a wealth of experience in the financial services industry in different roles. He currently is the CEO of Context Capital Partners. Before that, he was President and CEO of ConvergEx Group, which was a member firm. And during his career, he's worked at NASDAQ, where he was responsible for the U.S. And UK equities options and futures exchanges. He worked at Susquehanna International, Philadelphia Stock Exchange, Chicago Board Options Exchange. So, a lot of deep experience in the industry that he brings to the Board.
He also, outside of the finance realm, has a number of interesting positions. He's Chair of the Board of trustees of Franklin and Marshall College, where he went to college, and he's a member of the Board of Advisors of Owen Graduate School of Management at Vanderbilt University, where he earned his MBA. He's also Chair of the Board of the Historical Society of Pennsylvania and trustee of the Pennsylvania Academy of Fine Arts. And I probably left out some stuff there, but we'll stop there. So, with that resume, you can see why we're so delighted to have Eric on our Board and have him here with us today. So, please join me in welcoming Eric.
02:43 - 02:44
Eric Noll: Thank you, Robert.
02:49 - 03:13
Robert Cook: So, I'd like to start by just talking a little bit about the FINRA Board. We're kind of a unique organization. We have a public service mission of protecting investors and promoting market integrity. And we have representatives of the industry and the public on the Board. And maybe you could just share your thoughts about what is the role of our Board in supporting an organization like FINRA in achieving its mission?
03:15 - 04:23
Eric Noll: It's a great question because as I think everybody knows, there's ten public governors on the Board, which gives the public governors a slight majority. But there is a lot of industry governors as well, and they are laddered based on their role in the marketplace so they either represent a small firm, a medium firm, a large firm, a clearing firm. So, they have lots of perspectives that they bring. I would say one of the things that has been most impressive to me having joined the Board is how when we all get in the room, those perspectives, they help inform the thinking of the Board, but it really is a Board. And it really approaches the mission of FINRA of investor protection and market integrity with almost one voice. So, within the boardroom there isn't this conflict that you might expect with, 'Oh, well, this is what we want because we're the industry and this is what we want because we're the public.' It's a much more collegial, much more focused on, "what is the right thing for the market?" It's been very impressive and it's actually a testament to your leadership that you've been able to create an organization where people respond to it in that way.
04:23 - 04:33
Robert Cook: Well, I think it's really a testament to the caliber of the Board members we have who kind of leave their hats at the door and just come in and do what's best for the investors we all serve.
04:33 - 04:33
Eric Noll: Yeah.
04:34 - 04:53
Robert Cook: So, you've been on the Board about three years, but you were familiar with FINRA through various points of interaction both at a member firm and an at exchanges. So, you probably came in with an impression of FINRA from your work with it on the outside. So, looking back, is there anything that surprised you once you got to know FINRA in your current role?
04:53 - 05:42
Eric Noll: Yeah, so when I was at NASDAQ, my interactions with FINRA were really one as a vendor and service provider. So, FINRA was a provider of surveillance services and other regulatory services to NASDAQ as the exchange. But we were also competitors in some strange way because we were looking for market share. Lots of trades took place off exchange in the dark pools and got reported through FINRA, so it was a frenemy kind of relationship. But my perspective of the organization was limited by that. Then I became a representative of a member firm and my perspective became one who was regulated by FINRA. And I will say when I first took the role at ConvergEx, I was a little concerned. I was like, 'Okay, so now I've got to deal with FINRA. They're going to be in here, they're going to be in my hair every day.'
05:42 - 05:44
Robert Cook: No one here knows what you're talking about.
05:45 - 06:40
Eric Noll: And the reality was it was a great working relationship. We didn't always agree. And there were some times when I got a little irritated by it, but it was a really strong working relationship. And the reality of it is good regulation makes better broker-dealers, good regulation makes for better investor treatment. And if you are in the business to be the best that you can be in this space, you want good regulation. And so, FINRA helps bring that to the table. That's one of the things I think I've learned over time, particularly since joining the Board, is that we're really after that, we're really trying to make that work. Will we make mistakes? Yeah, sure. But the reality is at the core of what we're trying to do is make this a better experience for investors and better experience for brokers and a better, more vibrant market.
06:41 - 07:04
Robert Cook: I love that observation that good regulation makes it a stronger industry. And part of our job at FINRA is to make sure it is good regulation and that we're working with the industry to make sure that we're achieving that. Maybe you can talk a little bit from your perspective. What's your long-term vision for FINRA? What do you see are the biggest areas of, say, opportunity for FINRA over the next few years?
07:04 - 08:37
Eric Noll: Yeah, so, when I joined the financial services industry, people still wore funny colored jackets, and they made hand signals on the trading floors, and it is so different and it moves so quickly. So, as we all know, our markets are primarily digital today, primarily almost completely electronic. And so, where I see us going as an organization is using more analytical tools, trying to keep pace or even stay in front of any sort of dramatic changes in the speed in which our markets are moving. Not just our markets moving every day, but how they're evolving in different ways. And I think where FINRA has worked on that is creating this one voice in terms of the regulatory mission. So, all of us in this room are familiar with Enforcement, Surveillance and Market Reg and Examinations. So, we know the divisions.
But under the way it's operating now, it's really trying to be highly coordinated with one another and I think that's really effective using technology and trying to lead the way. And I think we just have to continue to do more of that as an organization. The other area I think that I've noticed over my service on the Board is we are, in many ways, hyper-focused on equities and that is appropriate, and it is what's on the news every day. But we have a giant role as an organization in options and fixed income. And I think that we're going to see more of that and we're going to need to be more in that space than we have been in the past.
08:38 – 09:07
Robert Cook: It's a great observation. I mean, people often the fixed income market feels a little left out anyway from some of these conversations or that people are trying to apply equity ideas and principles to the fixed income market. But really there are a lot of SROs looking at the equity space. But we, the MSRB, are really the only ones looking at the fixed income space. So, that's such a great observation. So, those are some of the areas of opportunity for us. To flip it around, what do you see as some of the biggest areas of challenge for FINRA?
09:07 - 10:19
Eric Noll: I think one of the areas of challenge is I've been a big fan of the democratization of our markets, and I think we've seen innovation and change happen with new entries into the marketplace that give the tools of investing into the hands of the end user, primarily a retail investor. But I think where the industry has not, or we as FINRA have work to do, is particularly around disclosure. If the hallmarks of our regulation and the hallmarks of our market are education, transparency and disclosure, I think the way the industry works today, we're probably letting it down a little bit on the transparency and disclosure parts. Not that we don't have people disclosing in documents, but we do it in a way that they're virtually unreadable. I often tell people the story that when I first opened my first options account as a broker, someone gave me the options disclosure document, the ODD, as we call it. I think it was 60 pages. And it went right into the trash can. Never read it, never paid any attention to it. We haven't evolved too much away from that.
10:19 - 10:20
Robert Cook: No, it's gotten longer.
10:20 - 10:39
Eric Noll: It's gotten longer and more detailed. So, I think we have to really think about what that means to disclose risks and to be transparent about what we do, because I think the more democratized our markets become, the more important that's going to be for people to understand that part.
10:39 - 10:51
Robert Cook: That's a great point and it connects to your earlier point about the technology changing the industry. And is there an opportunity to use some of the ways that people engage through technology to help on this disclosure point that you raise?
10:51 - 10:52
Eric Noll: Yeah.
10:52 - 11:09
Robert Cook: So, obviously one of the main functions that FINRA performs is establishing standards of conduct, rules of the road for the industry. And are there any particular areas of regulatory policy top of mind for you or that you think further guidance or enhancements would be appropriate?
11:09 - 12:34
Eric Noll: So, going back to this democratization and changing disclosure and transparency and trying to think about that as well, I think the flip of that coin is what I call social media communications in the marketplace. And we've seen recently in the banking sector how quickly social media can inform and change the outcome of certain banks. So, the run on deposits, SVP and Signature, which was primarily a social media phenomena. In the brokerage industry and the industry that we regulate, we haven't had that kind of effect yet, but we do have this Twitterverse, if you will, an echo chamber out there in the retail community. And I don't think that we as an industry have figured out how to deal with that yet.
It has, I think, less to do with broker-dealer responses, but I think has some to do with that and some with how we as FINRA and other regulators are going to manage what could be misinformation, but also how do we deal with the very quick environment that will change in seconds with that kind of information flowing through the marketplace and the traditional response of us just slowing down and stopping in many ways only aggravates the situation. So, I think we need to do some work within the industry and at FINRA to really think about how are we going to respond to the pressures of social media.
12:34 - 13:30
Robert Cook: It's a great observation and we've obviously seen it in the scenarios you just described. We've seen it in the meme stock area in our industry, and I think it's a great one for us to be working together on because I think it's one of these challenging problems and their limits to the regulatory tools that can be brought to bear. We regulate our members. We don't regulate other people. And if people are getting their information from other sources, how does one think about it? And I know a lot of folks in this audience are probably thinking about that as well, and it'd be great for us to continue that conversation. So, cybersecurity, digital assets, artificial intelligence, you mentioned this before and the new technologies, hot topics in the industry. But stepping back for a second to kind of your role in the FINRA Board, we need to, as a regulator, stay current on these. How do you think of the role of the Board and staying on top of developments in this area?
13:30 - 16:31
Eric Noll: So, when we look at the changes that are coming, and I'll take your question a little bit reverse order, one of the things that we've encouraged as governors and has really been staff led by you and other people there, is to create, I would call them skunkworks or exploratory projects, around generative AI, around the blockchain, around crypto. I think one of our expectations as a Board, and we don't know and I certainly have no insight into the ultimate regulation of the crypto industry, but I would expect at some level the SEC is going to have a major role in that space, and in that industry, and that coming out of that, FINRA is going to have a major role and that space in industry. And so, we have to get ourselves prepared for that and that is learning about the spaces, learning about the technology, that's learning how those markets work. And coming up that curve pretty fast, we've all seen the ChatGPT and generative AI news in the last couple of months.
Luckily, FINRA's been in front of that curve to a certain extent. We're not using it internally, but we are studying it. We have projects that we're looking at, which I think is terrific, and we're going to have to continue to know what the effects of that are on the marketplace. And the Board is to a large extent on top of that, paying attention to that, what are we doing with that? Where are we driving that? And that's very important. On cybersecurity, we're in a unique position both as an organization and as a Board. So, one is we have to protect our own data. And FINRA has an enormous amount of data coming into the organization from CAT and from other sources. So, we have to spend a lot of time, and I view it as one of our core missions as a Board, is to make sure that we are engaged in data safety and security, that we're controlling that information as it's on the Board.
We have a CISO for FINRA—Cyber Information Security Officer. There's another one for CAT LLC and the CAT organization. And we as a Board meet regularly with the CISO, regularly with that staff, we review what they're doing, we question their ratings. They put ratings like, this is high security, this is medium security, we think we're doing a good job here, and we actually push on that, and we also bring in external speakers. So, we've had providers from the outside to come in and review our cybersecurity as well. So, that's certainly part of our core mission is to do that. The other part of our mission, which we also oversee, is the regulatory side of cybersecurity, which is the use of the internet and technology for fraud, for manipulative trading, and to make sure that broker-dealers are, in fact, protecting data and engaging in that on their side of the ledger as well. And so, there's a whole unit—I think I have the anagram, right—CAU, Cyber Analytics Unit, that works with all the regulatory side in terms of examinations and surveillance. It's really a dual mission in a very complicated area.
16:32 - 17:43
Robert Cook: It really is. It's almost like, in a way, tri-part, too, because we have to keep FINRA's data assets secure. We have a responsibility to oversee the firm's use and efforts to keep their data secure. And then we also have a partnership really, with the firms that we continue to build because we're all in this fight together and they're often victims of the types of things we're worried about. And I know our team's been trying to work to provide more information and guidance and capabilities and look forward to opportunities to do more of that as we move forward. It's a really critical role of the Board. Just from the management's perspective, it's actually really, really helpful having expertise at the Board and probing questions at the Board level into something like this, to make sure that we're thinking about things proactively and deeply, kicking the tires, questioning. It's a great aspect of the governance structure to provide assurance that we're keeping the assets safe. So, you've talked a lot about data and analytics. Is there anything that comes to mind when you think about where we're going in the coming years, how we could better use data analytics or new types of technologies?
17:43 - 19:08
Eric Noll: Yeah. So, I think—and I think this is very much of an evolving space—but I think analytics in general. And I will say one of the silver linings of the pandemic, some of this came sparking out of the pandemic, which is the ability of using technology and analytics to remotely do part of FINRA's role. So, one of the things we learned coming out of the pandemic is that remote examinations are possible and remote surveillance is possible, and using technology gives you a much broader swath of data and the ability to view patterns to perform your mission. And I continue to see that grow over time. I view this, for those of you who have ever worked in public accounting or have dealt with public accountants, the way they used to do audits is they used to do a sample. I'm going to sample your revenues, I'm going to sample your these things. And then from that, I'm going to extrapolate a lot of other behavior from the organization and say that's good or bad. I view FINRA regulation much in the same way, which is we used to sample different aspects of people's businesses to determine whether they were in compliance or whether there was a problem or something else. With modern analytics and modern computing, you can actually do the whole thing. You can actually look at all of the activity that takes place. I just think it raises the mission to a much higher level. I only continue to see that evolve.
19:10 - 19:41
Robert Cook: The opportunity is that each time you pursue one another, one opens up, two in this regard. So, it's a fascinating place to be. I want to shift gears for a second and talk a little bit about a different topic. Our Board issued a statement a few years ago about its commitment to diversity and inclusion efforts. You and I have both spoken about this both together and publicly in the past, but maybe for the benefit of this audience, maybe you can share a little bit about your view about why is this an important topic for us to address? Why do you think firms in the industry should care about DEI?
19:41 - 20:10
Eric Noll: Let me start out by saying that Eileen Murray, who was the Chair before me, this was part of her mission, and she was very committed to this as a process for FINRA. And I'm very honored and pleased to continue that process. I think as a Board, we've done a lot of work around this and tried to look at this as ourselves as a Board. And so, at this point we are majority woman and about 32% of people of color, of diverse backgrounds.
20:10 - 20:11
Robert Cook: At the Board level.
20:11 - 22:39
Eric Noll: At the Board level. And when you look around the industry, if you look around actually most of the United States, I view that as pretty good. I don't think the work is done by any means. And I think we're going to have to continue to be present and part of that and continue. You, especially, in working with the other senior staff, have brought that entire framework to FINRA itself and have engaged in that effort to bring a diverse workforce—still a tremendous amount of work to be done. But why does it matter? I guess is the question and why should we care in the industry? The first reason I think it matters is just the very simple one of it's the right thing to do. We have a world in which we need to make sure that all people are included in and get the benefits. So, that's step one, I'm going to just take that as a given.
But one of the second reasons I think it is, is that diversity of viewpoint, diversity of information helps make us better thinkers. We respond better to that. We tend to find things because we're getting different kinds of viewpoints and different angles on how we're looking at things. So, that's also very important. Specifically, to the financial services industry, I have been troubled historically and continue to be troubled, that the level of mistrust of people of diverse communities of financial institutions and our markets in general has never been higher. And I think one of the reasons why it's never been higher is when they look at our industry, it does not look like them. They do not feel responded to in that industry. And I think that we need to think about what that says about our markets, how our markets continue to evolve.
I think Gerri [Walsh] may have told me one time, Gerri runs our educational efforts at FINRA, she may have told me this at one time, or maybe I learned it somewhere else, that the number one user of crypto exchanges is African Americans and they are a very low level user of American markets. Because they feel like they're safer in the crypto space. And when you think about that and you think about everything that's happened in that space, FTX, all the other fraud and all the other issues that have gone there, it's completely the opposite of what it should be. And so, our DEI efforts are not only the right thing to do and help us be better, but I also think we need to do this because we need to make sure that everyone is getting the benefit of our regulation and the benefit of safer markets.
22:40 - 22:57
Robert Cook: Thank you for those words and I know all the FINRA team really appreciates the unwavering and explicit support of the Board for efforts in this area. And its leadership by example, its efforts to promote a diverse and inclusive environment on the Board itself. Any final thoughts about the future of the industry?
22:58 - 23:39
Eric Noll: Listen, I view what I do—some people in the room will probably laugh at this—I view it as first of all, fun. I love doing this and I'm energized by it. I'm charged by it. But I also think that it's an important responsibility. And I think all the governors that I work with on this feel that as a critical responsibility of what they do, it's not even about the honor of being on the FINRA Board, it's about how can I help our markets evolve, how can I help them get better? How can I provide that extra effort that's going to make our markets faster, quicker, safer, more reliable and just continue that push? And I just think being part of that, it's just a wonderful thing to be.
23:40 - 23:56
Robert Cook: That's a great tone to end on, Eric. I want to thank you for spending time with us and giving some insights into audience to get to know you a little bit more as the Board Chair and share some insights as to how our Board works and some priorities. But don't you have a meeting to share?
23:57 - 23:58
Eric Noll: I do, we have to go finish our Board meeting.
23:58 - 24:02
Robert Cook: Okay. Well, please join me in thanking Eric for being with us this morning.
24:07 - 24:27
Kaitlyn Kiernan: That's it for today's episode of FINRA Unscripted. Registration for next year's Annual Conference is now open on finra.org. Check out the show notes for a direct link. If you have any ideas for future episodes, you can email us at [email protected]. Today's episode was engineered by John Williams. Until next time.
24:32 - 25:00
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