Watchdog slams Finra’s ‘abysmal’ record

A good-government group is asking Congress to rethink the concept of self-regulation.

A good-government group is asking Congress to rethink the concept of self-regulation.
In a letter sent to several congressional committees today, the Project On Government Oversight took aim at the Financial Industry Regulatory Authority Inc.
“In light of Finra’s abysmal track record, and the flawed premise of self-regulation in general, POGO calls on Congress to consider vastly curtailing the power of [self-regulatory organizations],” the group wrote.
“Effective, independent, and efficient government regulation is the only proper way to safely oversee our markets,” POGO added in the letter.
POGO, a nonprofit that investigates alleged corruption and other misconduct “in order to achieve a more effective, accountable, open, and ethical federal government” was founded in 1981 to expose wasteful military spending. It has since expanded its sights, as evidenced by its attack on Finra.
The group claims SROs, including Finra, failed to prevent “virtually all of the major securities scandals dating back to the 1980s,” POGO wrote. The group blamed the “incestuous relationship” between SROs and the financial services industry, and pointed to the past industry ties between some Finra executives and public board members.
Although Finra claims no taxpayer funds are used to finance self-regulation, POGO said Finra’s funding system “amounts to a user tax on investors in the form of transaction costs.” Taxpayers also “must foot the bill for the SEC’s oversight of Finra,” it said.
Some financial reform proposals in Congress have called for an assessment of self-regulation, but none have called for ending the system. In the meantime, Finra is pushing for oversight of investment advisers — an idea POGO opposes.
The POGO letter “has numerous inaccuracies and misperceptions,” said Finra spokesman Herb Perone, in a statement.
“The letter seems to be comprised mainly of accusations that we strongly disagree with from an outstanding lawsuit,” the spokesman said. “We would have appreciated the opportunity to discuss their concerns.”