Yield of Dreams

FINRA’s Most Fond Memory of 2012: One-Upping the SEC?

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There was no shortage of regulatory actions and initiatives coming out of FINRA in 2012. The most prominent ones are still etched in our minds: the new suitability standard, the crackdown on private placements and non-traded REITs, and the recent proposed rule on recruiting bonus disclosure. These probably bring back bad memories for some firms.

But in its annual year in review, FINRA pats itself on the back for the number of regulatory referrals to the SEC and other agencies. The report included the usual highlights of its own regulatory accomplishments, in-house, but why the emphasis on referrals? Is FINRA trying to say, ‘We can do your job better than you can’?

We all know about the brutal fight between the SEC and FINRA to be the top watchdog on Wall Street, and these enforcement review reports are always the perfect opportunity for each agency to say, ‘Here’s how many firms and individuals we nailed this year.’ 

According to the report, FINRA’s Office of Fraud Detection and Market Intelligence referred 692 instances of potentially fraudulent activity to the SEC and other agencies, including 347 insider trading referrals and 260 fraud referrals. The agency linked to a long list of referrals that led to criminal and/or civil actions. 

To be fair, FINRA has some justification in my mind for stressing 2012’s referrals. In 2012, its referrals resulted in about 45 criminal/civil actions, compared to only 23 in 2011. (Keep in mind, the list only includes those releases where FINRA was thanked by the SEC, and may not provide a complete picture of all actions that came out of its referrals.) 

Is FINRA just tooting its own horn? Or is Chairman and CEO Rick Ketchum trying to show that he can do the SEC’s job of regulating investment advisors? It’s no secret, of course, that FINRA wants to be the self-regulatory organization (SRO) for RIAs. That regulation, however, is still up in the air.

For more on FINRA's 2012 highlights, including which firms and investment products got hit the hardest, click here.

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Casting a gimlet-eye on asset management issues.

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