Saturday, October 31, 2009


During the financial industry meltdown over the last two years, countless individuals have witnessed their life savings and retirement funds dwindle. At the SIFMA annual meeting on October 27, 2009, FINRA Chairman Rick Ketchum addressed these concerns and discussed some of the new patterns emerging within the financial industry, including proposed regulations and emerging business practices. The highlights of Chairman Ketchum’s address are set forth below:

Regulatory Shift

One of the main points of emphasis with regard to regulatory reform over the past few months has been the harmonization of the standard of care for broker-dealers and investment advisers. As Chairman Ketchum noted, most investors cannot distinguish between the two, in part because their services have begun to overlap each other in many respects. Accordingly, FINRA “whole-heartedly embraces” the Obama administrations goal of harmonizing the fiduciary standard for broker-dealers and investment advisers.

In addition to reforming the standard of care, the financial industry must find a way to harmonize the oversight and enforcement of that standard to ensure compliance by industry professionals. As Chairman Ketchum emphasized, for such a reformation to be effective, compliance “must be regularly and vigorously examined and enforced to ensure the protection of investors.”

Fraud Detection

Chairman Ketchum also discussed FINRA’s renewed focus on detecting and combating fraud. Namely, FINRA has enhanced its examination programs, procedures and training to help deter fraudulent conduct. In addition, FINRA recently established an Office of the Whistleblower—which handles high-risk tips—and announced the creation of an Office of Fraud Detection and Market Intelligence—which will in essence provide FINRA with a centralized anti-fraud division.

Technology Shift

With the emergence of social networking as a means to keep in contact with friends and interact with potential customers, FINRA is facing new regulatory challenges. As Chairman Ketchum noted, many younger registered representatives use sites such as Facebook, LinkedIn and Twitter as part of their everyday lives, and financial institutions cannot easily supervise their employees’ communications on these sites. As such, most firms have established rules prohibiting their employees from using these sites for business purposes. In reality, however, there is no cost-effective way to enforce these rules.

Accordingly, FINRA recently formed a Social Networking Task Force to “explore how regulation can embrace technological advancements in ways that improve the flow of information between firms and their customers.”

As is evident, the financial industry is currently facing an emergence of new patterns and challenges, both in regulation and in business practices. FINRA, as a self regulatory organization, is charged with embracing these paradigms and enacting regulations to ensure that investors stay protected. Click here for a complete copy of Chairman Ketchum’s address at the SIFMA annual meeting.

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