From Ulmer’s Broker-Dealer Law Corner Blog
By Alan M. Wolper
I apologize for all the posts this week, but I am traveling and am in a different time zone, so I am awake at hours when, ordinarily, I would be asleep, giving me time to muse. Anyway, given that, I will not test your willingness to indulge my random thoughts a third time in one week. But…you ought to be aware of what FINRA did yesterday, when it published Reg Notice 19-17. As I have been following closely, FINRA has made it its mission in life to go after firms that it self-describes as bad — although FINRA uses the less pejorative term “restricted.” To do this, FINRA first has to invent the standard — a quantitative standard, mind you — that it will use to identify these firms. Then, it has to invest a mechanism for dealing with these firms. The problems that I was able to spot in one quick read are really, troubling.
But one quick read won’t do it. I am going to have to dig in on this. I urge you to do the same. I will post something next week, but, in the meantime, read this Reg Notice. See whether you think FINRA deserves the right to dispense with due process, whether it should have the right to forgo the need to bring Enforcement actions and actually prove a case against an entity presumed to be innocent, whether it can essentially impose another net capital requirement on those firms it decrees to be bad; indeed, see if you even agree that there is a problem that needs to be addressed, or, if there is a problem, whether FINRA itself has caused it through its own inability to regulate this industry.
I have read, and I certainly agree, that trust must be earned, not expected. I, for one, am not convinced that FINRA deserves the trust it is asking for in this proposal. But, let me read it over the weekend, and get back to you next week with the ugly details.