FINRA moves to give industry a bigger voice on its board

What Finra is changing

Finra, the broker dealer self-regulator, wants firms to hold more seats on its governing board, moving away from the public-member majority created in 1996 after SEC-ordered reforms to address conflicts and enforcement problems at its predecessor. In its filing, Finra said the issues from three decades ago "are significantly different from the environment Finra faces today."

"The changes preserve important safeguards for Finra's regulatory mission and consensus-driven approach to governance," the regulator said. The plan requires no fewer than seven industry governors, at least five public governors, and lowers the board's cap to 20 from 25. Finra said the redesign would align its board with other market self-regulators such as the National Futures Association, a body that supervises the derivatives market.

Why critics are speaking up

The shift is poised to raise questions about Finra's independence. In a 2015 academic paper, former SEC Commissioner Hester Peirce argued the current setup leaves Finra accountable to neither side, writing, "An organization run by a board that is dominated by people who are not in the industry is not an SRO; it is a regulator with industry representation."

What the board does and what is next

Finra's board oversees a self-regulatory body that has the authority to ban or temporarily sideline bad actors and assess financial penalties. The organization also monitors stock and options trading, with its surveillance units forwarding tips and referrals to the SEC on potential insider trading and manipulation schemes.

Changes in governance remind investors that understanding structures can sharpen long term decision making. We're hosting our first ever investor livestream on 11/17 to show you how to use ChatGPT and Claude to invest like a pro, hosted by Briefs Finance CEO Jaspreet Singh. Save your seat.

The SEC plans to collect public input on the proposal for 21 days. The bottom line: who sits on this board helps shape how your broker is policed and how market surveillance runs, which can influence the risk environment across your portfolio.

Keeping up with how the industry evolves helps investors find smarter ways to gain an edge. On 11/17, our CEO Jaspreet Singh goes live for our first ever investor livestream on how to use ChatGPT and Claude to invest like a pro. Register to join him.