Report: Conflicts of Interest on the FINRA Board

Ann Marsh of Financial Planning says that a new report documents conflicts of interest on the FINRA board, the self-regulatory body with jurisdiction over financial services.

A new report by a group of securities arbitration attorneys calls into question FINRA’s ability to protect investors given alleged conflicts of interests on its board.

The report was issued Wednesday morning by the Public Investors Arbitration Bar Association, whose members represent investors in legal disputes with FINRA member firms. The group raises concerns about five of FINRA’s 13 public governors and one recently departed governor who now sits on the Federal Reserve’s Board of Governors.

FINRA’s board is comprised of 24 members. Among them, 10 have open industry ties consistent with the nonprofit’s public-private status as a self-regulator of the financial industry. Another 13 seats are designated to public members, intended to represent investors. The remaining seat is for FINRA’s CEO.

VEA Vice Chair Nell Minow was quoted:

“It’s just a disgrace,” says corporate and nonprofit governance expert Nell Minow. “These conflicts of interest are a monstrous issue. It destroys any credibility that the organization has at all.”

Minow, who is vice chairman of ValueEdge Advisors in Portland, Maine, was not involved in PIABA’s report. “This is exactly the reason that we don’t like to see industries regulate themselves,” she says. “Normally it takes a government agency at least a generation to become completely captive to industry. But in a self regulatory system, it takes five minutes….”This is not the fox guarding the henhouse,” she says of FINRA’s governance issues. “This is the fox eating all the hens.”

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