The Blog Of The Securities Industry Professional Association

I Come to Bury FINRA, Not to Praise her

FINRA gets some long awaited praise

In Shakespeare’s Julius Caesar, Marc Antony gives the stirring eulogy that was supposed to pump up Brutus while stomping on the grave of the murdered Caesar. The opposite occurs as he delivers an impassioned speech that has the citizens mourning for the good old days of Julius Caesar’s rule. Over the years we have been a very vocal critic of FINRA policies and deservedly so in our opinion. We have even speculated that FINRA may be on the way out the door due to the failures of Wall Street’s largest firm and the Madoff debacle. Today however, we come to praise FINRA!

We were recently sent a copy of a sample new account from created by FINRA for member firms to use as a template. Although the new account form is now longer (10 pages!) then the Constitution of the United States, we think it’s an excellent example of how a Self Regulatory Organization is supposed to act. Members should be given help to stay clean, compliant and up to date with the latest laws of the land. It is our understanding that a task force was assigned by FINRA to work on a complete New Account form that will help protect Brokers and Clients alike. I do not blame FINRA for the length of the document just like I don’t blame Sunbeam for putting a disclaimer on its Irons that says: “ WARNING: Do not Iron cloths while wearing them”! The trial attorneys have had a field day for years with suitability and have taken new account forms that use to be on an index card and forced the industry to make huge changes for fear of being sued. The interesting thing is that I can just hear one of these attorneys arguing in a future arbitration that the new account from is TOO LONG and the client did not know what they were signing! We would encourage all firms to immediately incorporate this new account form into their firm’s documents. We applaud FINRA for this proactive approach and would encourage them to continue this practice. In fact, we have already thought of a very important area that would not only help brokerage firms but could also help prevent a terrorist attack. Every month in Notice to members there a firms and supervisors named for Anti Money Laundering violations and specifically for ‘Failure to detect red flags”. This is one of the most agonizing and confusing aspects of AML. People view ‘red flags’ differently from firm to firm. For instance, large sums of money being wired in and out of a brokerage account (Madoff comes to mind here) might be a red flag for one firm but perhaps not for a larger international firm. A firm that specializes in stock certificate clearance may not see it as a red flag if one of their long time clients comes in with a large stock cert and sells it and wires money out the next week. So why not set up the exact parameters that should be red flagged for all firms? Even if this resulted in a list that was as long as the new account form, at least firms could run exception reports based on FINRA approved criteria as to what is every possible red flag available. I once heard a senior member of FINRA say in a meeting that “we are not here to do your job for you or write your procedures for you”. That way of thinking may apply for some things but AML is supposed to be about protecting Americans from terror rings and organized crimes. If you really think about it, FINRA could be helping to stop the next possible terror attack if they were helping members in every way possible with AML red flags. God forbid there was another attack and it was funded through a brokerage firm that didn’t see the “red flags” clearly. Its our opinion the AML is the one area in which FINRA should basically write the whole book and all the red flags for the firms using all of their vast resources to accomplish this task. There are many more areas that FINRA can be proactive to the members and we will discuss them in the future but for today we will heap some well earned praise on FINRA for trying to help its members and we sincerely hope this continues in the future.

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November 17th, 2009


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