FINRA will conduct its annual meeting of firms on Monday, August 19, at 9 a.m. Eastern time in the FINRA Visitors Center in Washington, D.C.
The main purpose of the meeting is to elect individuals to fill one small firm seat and one large firm seat on the FINRA Board of Governors, often referred to simply as the FINRA Board. Notable in the large firm seat election is the fact that the FINRA-endorsed candidate, Andrew Duff, former board chair at Piper Jaffray & Co., faces a challenger in Chris W. Flint, president and CEO of ProEquities Inc.
It is not uncommon for outside candidates to get on the ballot by petition, and indeed there is an opposition candidate in the small firm seat race. That election is contested by Robert Muh, CEO of Sutter Securities and the candidate endorsed by the FINRA Nominating Committee, and Linde Murphy, a nominee-by-petition who is chief compliance officer for M.E. Allison & Co. Inc.
What is notable in Flint’s candidacy is the fact that he has won the backing of several influential membership organizations in the financial services industry, including the Financial Services Institute (FSI) and the Bank Insurance and Securities Association (BISA). These are considered, respectively, to be among the leading advocacy organizations for the independent financial advice channel and the bank-based financial advice channel.
Not FSI’s First Endorsement
Dale Brown, CEO of FSI, tells PLANADVISER this is the first time both the independent and bank-based industry associations have jointly endorsed the same candidate in a contested FINRA Board election. It is also, he says, the first time in BISA’s history for endorsing any FINRA Board candidate—let alone, a candidate challenging the incumbent. Adding some additional context, readers may recall that current large firm FINRA Board member Jim Nagengast, chief executive of Securities America Financial Corp., won a seat by defeating the FINRA-preferred in a special election last year. Nagengast also had earned FSI’s endorsement.
Reflecting on the important role of the FINRA Board, Brown says the entity plays a critical role in oversight of the organization’s overall policy and strategic direction. The Board works in close partnership with Robert Cook, FINRA CEO.
“One of the strengths of the FINRA Board of Governors is the diversity of views and perspectives therein,” Brown says. “While we differ from the nomination committee on this election, I want to emphasize that FSI enjoys a great relationship with FINRA. We don’t take that for granted. There are a lot of positive things that are happening at FINRA. We are seeing more transparency and there is a commitment to really listening to and understanding the concerns of their members firms. Our enthusiastic support of Chris is a reflection of the optimism we have in FINRA’s focus and direction.”
Asked to distinguish themselves as a FINRA Board candidate, both Duff and Flint point to their ability to leverage 20-plus years of industry experience. Both also say they are in the prime of their careers in the financial services space, so they have a strong personal interest in seeing that the FINRA Board remains a fair, effective and efficient self-regulatory institution.
Duff, the FINRA-preferred candidate, is now finishing his initial three-year term on the Board of Governors. He says his record of service so far proves he should be allowed to continue in the role.
“During my first term, I helped ensure progress has been made on transparency and communication with member firms,” Duff says. “I’m a huge believer in self-regulation, but the foundation of this is transparency and communication. We’ve done a lot to communicate better about how rules and decisions are made, about what is the financial performance of FINRA, and more. We have set up ongoing vehicles online and in-person to get recurring feedback.”
Another area Duff has focused on is examinations. During his tenure, the conclusion was made by the Board to reorganize and streamline the examination staff, which Duff says is “probably the biggest and most important part of FINRA.”
“In particular, I helped us to move towards more risk-based exams,” Duff explains. “Historically, firms had been reviewed on a simple rotation. Now we are looking at business models and track records, and doing exams based more on a real profile, not just a number in rotation. The examinations themselves are more tailored now to different business models so that they can be both effective and efficient. There is no reason why we can’t be efficient and tailored while still conducting great examinations.”
Another major ongoing project for Duff has been helping to lead the Consolidated Audit Trail (CAT) program.
“To keep it simple, the SEC has asked for a new type of transaction reporting that goes across all markets—across all trades and derivatives in every single exchange. The goal is providing real-time data across all markets, all day every day,” Duff explains. “The goal is to get a comprehensive view of market activity to monitor for wrongdoing more expansively. Setting this up involves extremely complex technologies and capabilities. It’s been a major undertaking. It reflects the sophisticated and evolving capabilities of FINRA to actually be able to do something like that. There are days now when we can process north of 150 billion transactions. It’s an extraordinary amount of volume and complexity.”
A Retail-Oriented Voice
For his part, Flint, the FSI-endorsed challenger, emphasizes the importance of getting a “retail-oriented voice” on the FINRA Board. He says his background will help him collaborate not only with other FINRA Board members but also with other regulators, especially the Securities and Exchange Commission (SEC).
“The introduction and implementation of Regulation Best Interest has been a significant development for our industry, and one that I know we must help to go smoothly as FINRA Board members,” Flint says. “I can provide the needed retail voice that can cut across all the sectors and help FINRA and SEC collaborate effectively. I have had responsibly over distributor organizations, including life and annuity insurance distributor businesses. I’ve worked across banks, wire-houses, independent broker/dealers, insurance-owned broker/dealers, and more. I have helped to build and lead organizations, and I have also been a chief compliance officer. This perspective is needed on the FINRA Board of Governors.”
Duff also indicates he is a proponent of the SEC’s “Reg BI.” Both suggest the SEC has demonstrated that a collaborative process, bringing together industry stakeholders and consumer advocates, is what is required to develop and implement effective rules.
In terms of the influence he hopes to have on the FINRA Board, Flint says he wants to see, “a focus on tamping down on regulation through enforcement.”
“That’s going to be a crucial perspective moving forward, because one-off enforcement actions are not the best way to approach transformational changes that people may feel are needed within financial services,” Flint says. “Again, I would point to Reg BI. This is an example of a good rule, in my opinion, one that was developed through a process of inclusion and in collaboration with trade associations, investors and member firms individually.”