Finra board candidates from small B-Ds air big gripe about regulator

An unfair regulatory system is hurting small brokerage firms and needs to be changed, according to candidates running for seats on the board of the Financial Industry Regulatory Authority Inc.

An unfair regulatory system is hurting small brokerage firms and needs to be changed, according to candidates running for seats on the board of the Financial Industry Regulatory Authority Inc.
The seven candidates — all from small firms —squared off yesterday during a webinar sponsored by the National Association of Independent Broker/Dealers Inc.

The candidates are running for three board seats specificially designated for members of small firms. Four of the candidates are independent challengers; the remaining three were picked by a Finra nominating committee.

The independent candidates dismissed suggestions that they might be too strident to get their points across to Finra’s 21-member board, the majority of whom are not from the securities industry.

Nearly all the candidates, however, asserted that small firms are treated unfairly by the regulator.

Small broker-dealers are frustrated with rules that are “clearly designed for large wirehouse firms,” said Mari Buechner, chief executive at Coordinated Capital Securities Inc. and a nominating committee candidate.

“I’m angered every time I see an enforcement action against a large firm with proportionately small fines, versus small firms where fines are … exorbitant compared to their ability to pay,” said Lisa Roth, chief executive of Keystone Capital Corp., also a nominating-committee candidate.

“It’s utter insanity for the rulebook to be generalized,” said Ken Norensberg, chief executive of Four Points Capital Partners LLC, an independent candidate.

“Look at the [financial] meltdown — large firms caused it, and they got [Troubled Asset Relief Program] money,” said Jed Bandes, president of Mutual Trust Company of America Securities Inc., another independent candidate. But small firms “got a SIPC [fee] increase,” he said.

The disparate treatment was more the result of inflexible rules, said independent candidate Joel Blumenschein, president of Freedom Investors Corp.

“Rules are set up by lawyers, and [they’re] the same for everybody,” he said.

Influencing a large board dominated by non-industry governors is key to easing the burden on small firms, the candidates said. Small-firm governors have to “communicate to [a board] that is [often] hostile to your point of view,” Ms. Roth said.

Industry governors need the “proper degree of decorum … to get the rest of the Finra board to vote our way,” she added.

Other candidates agreed. “You have to [communicate] in a very collegial manner — that is the way [the Finra board] understands” issues, said Howard Spindel, a financial principal at A.J. Pace & Co. Inc. and a compliance consultant, who is also challenging the nominating committee candidates.

“One of the things I’ve always been concerned about is whether … the board is receiving the proper information” from district industry committees and Finra’s small-firm advisory board, Mr. Spindel added.
“I feel they may get watered-down versions of our concerns,” he said.

“You need solid positions that you can articulate to the board and get your position across,” Mr. Blumenschein said.

Industry scandals “didn’t happen because there are not enough rules but because [rules] were not enforced properly,” Mr. Bandes said, “so I’ll do all I can to persuade [the board] not to vote for additional rules that will cost small firms additional time, money and manpower.”

An unwieldy rulebook and hostile examiners are putting firms at risk, the candidates said.

“We don’t want to see [small firms] go the way of the dinosaurs,” Mr. Norensberg said. “We lose more broker-dealers every day.”