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PODCAST

The Ombudsman: FINRA’s Confidential, Independent Resource

August 18, 2020

An ombudsman is a neutral party that acts as an impartial, confidential and independent resource that informally works to assist in finding solutions to issues or concerns an individual may have with an organization. And FINRA's Ombudsman is no different.

On this episode, we sit down with FINRA Ombudsman Cindy Foster to learn more about the office and how she works to prevent real or perceived conflicts of interest and, when necessary, recommend changes to ensure fair policies and procedures remain in place.

Resources mentioned in this episode:

Office of the Ombudsman

FINRA Audit Committee

International Ombudsman Association

United States Ombudsman Association

FINRA Whistleblower Tip Line

Investor Complaint Center

Listen and subscribe to our podcast on Apple PodcastsGoogle PlaySpotify 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 

00:01 - 00:31

Kaitlyn Kiernan: An ombudsman is a neutral party that acts as an impartial, confidential and independent resource that informally works to assist in finding solutions to issues or concerns an individual may have with an organization. And FINRA's Ombudsman is no different. On this episode, we sit down with FINRA's Ombudsman Cindy Foster to learn more about the office and how she works to prevent real or perceived conflicts of interest and, when necessary, recommend changes to ensure fair policies and procedures remain in place.

00:31 – 00:40

Intro Music

00:41 - 00:53

Kaitlyn Kiernan: Welcome to FINRA Unscripted, from Hoboken, New Jersey, I'm your host Kaitlyn Kiernan. Today we've got a new guest joining us. We've got Cindy Foster, FINRA's Ombudsman. Cindy thanks for joining us.

00:53 - 00:54

Cindy Foster: Thanks for inviting me.

00:54 - 01:15

Kaitlyn Kiernan: So, Cindy is here with us to help shed light on just what exactly an ombudsman is and why it's so important that FINRA even has this office. But before we get into that, Cindy can you tell us a bit about your background, because I don't think ombudsman is the typical answer to that "What do you want to be when you grow up?" question. So how did you start your career?

01:15 - 03:46

Cindy Foster: Sure. I actually started my work career at FINRA. I came to FINRA--or what was then NASD—right out of undergraduate school. I started in what is now known as CRED or Credentialing, Registration, Education and Disclosure. I worked on issues related to special registrations or brokers who have disclosure issues. And I worked on the state desk for a while, helping states resolve qualification examination issues as well as broker disclosure issues. From there, I moved to Market Regulation and as a senior analyst I conducted reviews and investigations into fraud, manipulation, insider trading.

In the years before I left NASD, I was the lead for the member firm coordination project related to the OATS implementation. So I worked with NASD senior management, the SEC, technology officers, compliance officers, business line leads at member firms to ensure that they understood the Order Audit Trail system requirements, the rules, and that they had all the information and support that they needed to comply and be ready to report according to the implementation schedule.

Soon after OATS was implemented, I left FINRA or NASD to go to a company called SunGuard Data Systems' BRASS. I was their Chief Compliance Officer for several years and in that role, I was responsible for advising the executive management on industry rules and regulations and the impact of those rules and regulations on their systems and applications related to order routing, order management and trade execution. I was eventually promoted to Executive Vice President and gained responsibility for client services technology and product management. But with the birth of my child, I was actually looking for an opportunity to get closer to family and to come back to the Maryland/D.C./Virginia area. And so, an opportunity arose at FINRA, and I came back initially to work in Member Relations and Education and then the Ombudsman's office.

03:46 - 04:05

Kaitlyn Kiernan: Wow. So, you have quite a varied experience, including four different FINRA departments within FINRA. So that's got to help in your role as well, just having a deep understanding of these different business units and network of people within the organization you're familiar with. So, what is FINRA's Office of the Ombudsman?

04:06 - 04:35

Cindy Foster: It consists of a group of individuals who are trained ombudsmen. We also have data analysts here, or at least one data analyst in the office. We all have significant financial services or industry experience. Our role really is to receive complaints and concerns from any constituent—we refer to them as visitors—who interact with FINRA and may have a concern about their interactions with us.

04:36 - 04:41

Kaitlyn Kiernan: Are all ombudsman's officers the same? How is the FINRA office structured?

04:41 - 06:24

Cindy Foster: Actually, there are many types of ombudsman models. There's the executive model, the classical model, which is sometimes referred to as a government model. There is an organizational model and an advocate model. And there are lots of different hybrid of those models. The difference between an organizational model and the classical or government model is that government ombudsmen are often appointed by statue or by a legislative group--by a state government or local government. Whereas an organizational ombudsman is employed at the firm in an informal manner to help receive and resolve complaints and concerns.

Classical ombudsmen typically are more formal in their process. They can conduct formal investigations and some of them have subpoena process. An organizational ombudsman is informal. We do not have the ability to subpoena individuals. We do conduct detailed reviews, which looked just like investigations, but we don't take on the record testimony. So, a lot of what we do is very similar. But I should say too, that there are many federal ombudsmen who actually follow the organizational ombudsman model.

So, each organization or government entity will set up their ombudsman office according to what makes sense to them. They can choose the classical or government model, but they may prefer the organization model, or they may have some combination of the two.

06:24 - 06:28

Kaitlyn Kiernan: So which model best describes the FINRA Ombudsman's office?

06:28 - 07:04

Cindy Foster: FINRA follows the organizational model which means that we are informal in nature, but we do review the issues that come to our office. Our reviews can look very much like an investigation with the exception that we do not take on the record testimony or participate in any formal process. Regardless of whether or not an organization follows a classical model or an organizational model, we all follow the same basic tenets and that's independence, neutrality and confidentiality.

07:04 - 07:08

Kaitlyn Kiernan: How does your office work to maintain those tenents?

07:08 - 07:42

Cindy Foster: We are separate from the rest of the organization. So, we do not report through the normal reporting chain within the organization. FINRA's Ombudsman's office reports directly to the Audit Committee of FINRA's Board of Governors. We don't share our detailed records with anyone within FINRA, and we handle all of our issues on a confidential basis unless the individuals who come to our office give such express permission to share the information with other individuals within the organization.

07:42 - 07:50

Kaitlyn Kiernan: So, you're only accountable to the Board of Governors? No one else within FINRA I can influence your priorities or resources?

07:50 - 07:51

Cindy Foster: That's exactly right.

07:52 - 08:01

Kaitlyn Kiernan: So, you mentioned that your team is trained to be an ombudsman. How do you train to be an ombudsman? What are the skills that are emphasized there?

08:01 - 09:08

Cindy Foster: Most importantly you have to have the ability to listen. You have to have good negotiation skills, good mediation skills. It doesn't hurt to understand psychology to some extent. But what's important to us in our office is that first we have a deep understanding of the business, of financial services—the industry rules and regulations—as well as the policies and procedures of the various FINRA departments. Everyone who works in the office has worked in other FINRA departments at some point in their career and almost all of them have also worked for financial services firms.

We also take advantage of ombudsmen training that's offered by either the International Ombudsman Association or the United States Ombudsman Association. They both have very robust curricula that trains individuals to become ombudspersons or ombudsmen. We also require some level of mediation training in order to practice as an ombudsman at FINRA.

09:09 - 09:25

Kaitlyn Kiernan: So, you mentioned that the primary role of an ombudsman's office at any organization is to take in and hear complaints or concerns from either within FINRA or outside of FINRA. How many do you receive annually?

09:25 - 09:56

Cindy Foster: On the average we receive about 650 to 670 cases per year. Only about 40 or 45 percent of those cases are actually complaints related to FINRA. The other cases are really complaints that individuals or entities have about member firms or about brokers or other financial services entities. So basically, 40 percent of that 650 number are FINRA-related complaints.

09:56 - 10:05

Kaitlyn Kiernan: So, for the ones that are not FINRA related, are you directing them elsewhere, referring or teaching them the correct channels for those?

10:05 - 10:24

Cindy Foster: Exactly. In some situations, it could be that we refer them to FINRA's Whistleblower line. We may refer them to the Investor Complaint Center, or we may connect them to the right regulator, which is often a state or the SEC or some other entity.

10:24 - 10:32

Kaitlyn Kiernan: And so, when the complaints you received do have to do with FINRA, what kind of concerns are you receiving?

10:33 - 10:52

Cindy Foster: It runs the gamut, really. We receive concerns related to credentialing, registration, education, FINRA's public disclosure program, enforcement activities, member supervision, the exam process, the investor complaint program and dispute resolution.

10:52 - 11:00

Kaitlyn Kiernan: So, do you generally see the same pattern ones and the types of complaints you receive year to year? Or does that shift and change over time?

11:00 - 11:17

Cindy Foster: There may be small changes, but it remains consistent. Primarily, the group that contacts us the most are brokers—individual brokers or former brokers or prospective brokers—followed by investors and then member firms.

11:17 - 11:22

Kaitlyn Kiernan: And so, can you walk us through what the process might look like when you receive one of these complaints?

11:23 - 13:00

Cindy Foster: Sure. The most important thing is we start every conversation just by listening and making sure that we understand what the issue might be. The one thing that occurs in every situation is we're going to provide information or clarifying information. We are constantly assisting individuals to understand FINRA policies and procedures by making sure that they have access to rules, regs and other information that's publicly available on FINRA.org. And we spend quite a bit of time when possible connecting individuals to subject matter experts.

When people come to our office, we do offer them confidentiality, and so we can't reach out or connect them to anyone in the organization unless they give us permission to do so. From there, we tend to discuss options or paths that they can take in order to get their issue resolved. We may have to conduct a detailed review, especially if there's a claim of misconduct by a FINRA employee. We will conduct a review. We may decide to refer an issue to another department, assuming we have permission to do so from the person who contacted us, or we may escalate the matter. But quite frankly, it's very rare to escalate an issue. We can usually resolve it directly with the individual or work directly with the department to resolve the issue. And we also have the ability to monitor the situation until such time is resolved or the matter has concluded.

13:00 - 13:05

Kaitlyn Kiernan: So, you mentioned it's very rare to escalate the issue. How rare are you talking?

13:06 - 13:50

Cindy Foster: I would say less than 10 times a year. What I have found is that when we do find an issue, when there is an issue that we establish that something could have been done differently that once we work with the appropriate department to address the issue everyone works in good faith and FINRA staff is always willing to address the issue as quickly as possible. So, there's really no need to escalate the issue, because we're able to resolve it at the lowest level within the organization. And that could be at the staff level it could be at a supervisor level, but it's very unusual to have to escalate issues.

13:51 - 13:58

Kaitlyn Kiernan: Does a complaint automatically remain confidential if someone requests it or is there something else that determines that?

13:58 - 14:26

Cindy Foster: So, we will not disclose the identity of any person who contacts our office or the content of the conversation without express permission from the visitor unless there's imminent risk of harm or unless we are subject to judicial requests for SEC oversight requests. And even under those circumstances, we make every effort to maintain confidentiality as to the identity of the person who's contacted our office.

14:26 - 14:32

Kaitlyn Kiernan: So, if someone chooses to remain confidential does that impact your ability to conduct a review?

14:33 - 15:28

Cindy Foster: Yes, it does. FINRA's Office of the Ombudsman, we have full access to all FINRA records and we in many cases have the ability to review those records in the background. But in many cases, the specific facts and circumstances of a case is important to the outcome and it really helps to talk to the staff. And in some cases, the staff is still actively working on a matter and they may not have saved or uploaded the necessary information into the appropriate tracking system. So, we may not have access to that information. So, we're definitely limited it in many cases if we are unable to speak to the staff about an issue. But--and I know I've said this several times--but at a minimum, we're going to point them to processes, procedures, policies and information that's already available in the public domain.

15:29 - 15:39

Kaitlyn Kiernan: And so, if someone decides, okay, they're not going to remain confidential, they might feel like that puts them at risk. Is there anything you can say about that?

15:39 - 16:14

Cindy Foster: Yes. We emphasize that we can monitor the situation, so we can make sure that we are part of the conversation to the extent possible, facilitate the conversation and make sure that we monitor the outcome. And we can monitor the situation as long as it takes. So, if someone contact us because they're concerned about a disciplinary proceeding or enforcement activities, we all know that that could take quite a while, well we will monitor that situation even sometimes through appeal.

16:14 - 16:16

Kaitlyn Kiernan: So, there shouldn't be fear of retribution?

16:16 - 16:21

Cindy Foster: Actually, FINRA has a very strong policy against retribution.

16:21 - 16:26

Kaitlyn Kiernan: So, what are some of the possible outcomes of these reviews that you're conducting?

16:27 - 18:42

Cindy Foster: Well as I indicated earlier, the first thing is providing the information and resources. In many cases when people come to our office, there's simply a need to make sure that they understand, or they have all of the information available to them regarding a specific rule, policy or process. If we have to go further, we're going to discuss possible options to get the issue resolved or address or to improve the situation. And that could be just having a conversation with a particular department. It could be that there is additional information that they should be providing staff or it's just that they have to backtrack a little bit and follow a particular process. So, evaluating options is a very big part of what we do.

We also could decide that we do need to conduct a detailed review, and in those situations we will either come to a decision that we can substantiate what the visitor has told us and then we're going to work within FINRA to address that issue whenever possible, or we may find that we can't substantiate the claims, that there's just no evidence, that the caller or the visitors just given us general information and they haven't provided enough detail for us to go further. So those may be detailed reviews that ultimately, we are not able to substantiate. So, it's an unsubstantiated claim is how it's closed out.

And then rarely, we file cases without action and that only happens two or three times a year. These are cases where someone may make a general claim but provide no additional information and refuses to respond to follow up questions for information so we can pursue it. But typically, it's providing resources, it's discussing options and avenues to address the issue. It's conducting reviews and determining that there is an issue so let's fix it or we conducted a detailed review and the process or the policy or the staff did exactly what they were supposed to do.

18:42 - 18:50

Kaitlyn Kiernan: So, it's not a magic wand. You can't just have a caller call in and give barebones details and expect a magic solution?

18:51 - 19:25

Cindy Foster: Exactly. And unfortunately, a lot of people who call our office do go away unhappy and usually it's because they mistakenly think that we can intercede or intervene into enforcement activities or disciplinary proceedings. We don't have any power to overturn a decision or to stop an enforcement action or disciplinary proceeding from going forward. What we can do is review and monitor and raise internally any issues that we might discover.

19:26 - 19:33

Kaitlyn Kiernan: So, you can ensure that the process is being conducted fairly. You have no say on the subject of the enforcement actions.

19:33 - 19:34

Cindy Foster: Yes, exactly right.

19:35 - 19:42

Kaitlyn Kiernan: And there are other escalation processes for people who disagree with the outcome of disciplinary action.

19:42 - 20:26

Cindy Foster: Yes, and that's exactly what I mean when I say that we spend a great deal of time providing clarifications and making sure that individuals understand what their options are. So, we are reminding them of those escalation processes, the appeals process and we are also reminding them that they could actually speak to the staff and escalate those matters directly through the management chain themselves. And of course, we're happy to do that for them. We will facilitate those conversations; we will facilitate those escalations. But at the end of the day we are not going to intercede and we're not going to stop the process.

20:26 - 20:31

Kaitlyn Kiernan: When should an individual call the Office of the Ombudsman?

20:31 - 21:03

Cindy Foster: They should call our office when they have been unable to resolve the issue in normal formal channels within FINRA. So, they've attempted to contact the staff. They've attempted to escalate the issue and they've been unsuccessful. Then they should call the Ombudsman's Office. If they require confidentiality or anonymity, they should call our office. If there's no process within FINRA through which they can get their issue addressed, they should call us.

21:03 - 21:16

Kaitlyn Kiernan: That's good to know. So, when someone files a complaint what kind of communication can they expect to receive from you along the way as your team is looking into and investigating it?

21:16 - 22:03

Cindy Foster: It depends. And it actually depends on the type of issue that they're contacting is about. And in many cases, we can review the issue and give them an outcome and tell them what happened. But there are a fair number of situations where someone might be complaining about a particular investigation or a review, and as you know, FINRA reviews and investigations are confidential. And regardless of what we find during our review, we cannot disclose any details regarding any FINRA Investigation or review. That information is confidential until such time that it is final, and it meets the requirements to be published through various disciplinary database.

22:04 - 22:11

Kaitlyn Kiernan: So just to wrap up, I wanted to ask why is it important for an organization like FINRA to have an ombudsman?

22:12 - 23:06

Cindy Foster: We're an additional option for individuals who interact with FINRA to contact to have their issues heard or addressed, especially if they need confidentiality or desire confidentiality or anonymity. We are also neutral, which I think is very important. We don't advocate for any individual, including the individuals who contact our office. We don't advocate for FINRA, but what we do advocate for is fair policies and procedures. And we have the ability to review our cases over a period of time. We're always looking across cases to detect patterns and trends. And we do report on those patterns and trends to both senior management and the CEO, and we can make recommendations that will improve those policies and procedures going forward.

23:08 - 23:25

Kaitlyn Kiernan: Cindy thanks for joining us listeners. If you don't already, make sure to subscribe to FINRA Unscripted on Apple Podcast, Spotify or wherever you listen to podcasts. If you have any ideas for future episodes, send us an email at [email protected] Until next time

23:25 – 23:31

Outro Music

23:31 - 23:58

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23:58 – 24:04

Music Fades Out

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