Chairman Ketchum is seeking new areas of growth for FINRA. At FINRA’s annual meeting, Ketchum stated that he wanted to see FINRA take on the role as regulator for both retail professionals and institutions. He also wants greater market transparency through the use of audited quote and trade systems. Ketchum stated that he wants to see investors increase their use of BrokerCheck — the system the public can use to check the background of registered representatives and broker-dealers — so the investing public can better protect itself. Despite this push from FINRA to grow its reach, the number of broker-dealers has been in decline.
One reason for this decline could be the increase in user fees that FINRA charges. Another reason for the decline is the attractiveness of the registered investment adviser model, who are currently subject to SEC or state oversight depending on their size. The SEC only examined 8% of RIAS last year, while FINRA examined 58% of its members in the same time period. As such, RIAs are generally opposed to FINRA become their SRO, asserting that the FINRA rules-based business model does not mesh with their fiduciary duty business model. The apparent decreased oversight of RIAs may be the ultimate reason for the decrease in broker-dealers and the increase in RIAs, which, in turn, is the likely reason that FNRA is pushing to become the SRO for RIAs.
From Ketchum’s remarks, FINRAs growth model can be seen as a transparent effort to demonstrate to Congress and the SEC that it has the capacity to take on new and greater tasks. In other words, to support FINRA’s claim that it is the best choice to become the SRO for RIAs. This political debate will likely rage on through the summer; all the while FINRA will try to do more and more to increase the perception that it is the best choice. In the end, the most likely choice still seems to be a better funded and more active SEC. We shall see . . .