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SEC Nominees Field Questions on FINRA

Robert Jackson Jr., one of the nominees to SEC commissioner, told a senate committee the SEC should take a “prominent oversight role” over the SRO.

Two nominees to join the Securities and Exchange Commission fielded questions about the Financial Industry Regulatory Authority on Tuesday during a U.S. Senate Committee on Banking, Housing, and Urban Affairs hearing.

The White House nominated Hester Peirce, senior research fellow at the Mercatus Center at George Mason University, to fill the Republican commissioner seat, and Robert Jackson Jr., a professor and the director of the Program on Corporate Law and Policy at Columbia Law School, to fill the Democratic seat. The senate will now vote to approve the new nominees, although when that will occur is unknown. In the spring, SEC Chairman Jay Clayton was approved by the Senate only two weeks after his confirmation hearing.

Much of the question and answer portion of Tuesday’s hearing focused on why the SEC had not written rules mandated by the Dodd–Frank Wall Street Reform and Consumer Protection Act. The committee and nominees also spoke about executive compensation clawbacks, company disclosures and cybersecurity (which the committee grilled the SEC chairman on in September).

But the committee also focused on FINRA, the self-regulatory organization overseen by the SEC.

Sen. Mike Rounds (R-S.D.) was critical of FINRA and said it “must also do a better job at giving producers an outlet to voice their concerns.” He said that firms are hesitant to raise issues for fear of being more heavily scrutinized. Right now, he worries the regulatory atmosphere causes broker/dealers to stay quiet and “keep their head low.”

“I’m just curious whether or not it is an appropriate time to take a second look at FINRA,” Rounds said.

In response, Peirce said she has heard that small firms are hesitant and echoed Rounds’ worry about transparency. She suggested that was contributing to the reduction in the number of small b/ds. But Peirce also expressed confidence in new FINRA President and CEO Robert Cook.

Jackson said the SEC “should take a prominent oversight role in regards to FINRA,” although he didn’t say what that would look like. He would like to see FINRA better police brokers in the workforce that have already committed fraud.

Rounds also voiced his opinion on the Department of Labor’s so-called fiduciary rule, which he described as “flawed” and something that “truly does hurt the small investor.”

Both Peirce and Jackson were in favor of the SEC leading the rule-making process going forward, as well as a universal standard across products.

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