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SEC Commissioner Stein Tells FINRA To Toughen Up

Posted by Larry Doyle on June 10, 2014 9:38 AM |

“Speak softly but carry a big stick.”

Real leaders and financial cops very much appreciate that principle. Those playing politics and crony capitalism circa 2014 find it to be anathema.

Why is it that bad practices on Wall Street (e.g high frequency trading, abusive sales practices, market manipulation) are too often tolerated in Washington while costing ordinary Americans untold sums? Very simply, when the punishments do not fit the crimes the practices will perpetuate. The penalties become little more than a cost of doing business. Those ‘writing the tickets’ are little more than meter maids.

Those engaged in regulatory oversight might not appreciate these assertions but these realities are part and parcel of the self-regulatory model on Wall Street. To think otherwise is simply to be willfully blind. SEC commissioner Kara Stein recently told the folks at FINRA to take off their blinders. 

Let’s navigate and review Stein’s comments from a talk she delivered to FINRA’s Division of Market Regulation:

Lastly, I want to speak with you about enforcement.  Your enforcement process is crucial to your ability to enforce your rules and protect the markets.  And your general principles are in the right direction. Your sanctions should be designed to deter misconduct and improve business standards. And recidivists should be treated more harshly.

But, I fear the results, after months or years of hard work by you, are too often financially insignificant for the wrongdoers.  Your enforcement cases must be impactful, and provide strong motivation for compliance.

I would encourage you to examine your sanctions and update them.

Let’s ponder Steins remarks. “Financially insignificant for the wrongdoers.” Sounds synonymous with cost of doing business.’

As in the fact that FINRA’s sanctions represent approximately one tenth of one per cent of Wall Street’s bottom line. (From page 3 of FINRA’s 2012 Annual Report: “Overall in 2012, FINRA brought 1,541 disciplinary actions against associated persons and firms, levied fines totaling more than $69 million and ordered restitution of $34 million to harmed investors.”)

Think about that. If you are engaged in practices that generate meaningful do-re-mi and the cops on the beat are writing tickets that total one tenth of one per cent of your bottom line, what are you going to do? You will keep doing what you’re doing. That is human nature.

Stein is calling out the meter maids at FINRA. I commend her. What will FINRA do? Will they remain firmly ‘in bed with Wall Street’ or might they start to uphold their mandate to protect the public interest? Is Commissioner Stein speaking for SEC chair Mary Jo White, as well? I think we should hear directly from the Chair on an issue of this magnitude. Additionally, and perhaps more importantly, where are those on the Congressional banking, finance, and oversight committees calling for the same?

Writing parking violations while those inside the banks are robbing the system blind — and simultaneously paying off their political pals in the process — may be business as usual for FINRA, Wall Street, and Washington, but it is no way to run a regulator . . . let alone a nation.

Navigate accordingly.

Larry Doyle

Please order a hard copy or Kindle version of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy.

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  • Susan

    Great post today on FINRA.






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