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SEC Launches Dedicated FINRA Oversight Unit: Watching the Detectives

The SEC has launched a dedicated team to oversee FINRA, according to remarks by Marc Wyatt, Director of the SEC’s Office of Compliance Inspections and Examinations (“OCIE”). Congress has vested the SEC with the power to supervise FINRA, including the authority to inspect and examine. The new unit, named FINRA and Securities Industry Oversight (“FISIO”), is headed by Kevin Goodman, head of the SEC’s broker-dealer exam program. On Oct. 17, 2016, Wyatt spoke at the National Society of Compliance Professionals 2016 National Conference in Washington, D.C., where he made the announcement. According to Wyatt, the new FISIO team includes “roughly 40 people” throughout the country, and consolidates the SEC’s oversight of FINRA “into a single group.” The FISIO team will oversee FINRA to ensure “that it’s fulfilling its mandate in terms of evaluating its member broker-dealers.” On a separate panel at the event, Goodman noted that before FISIO, the SEC examined FINRA through “programmatic” exams focused on a particular FINRA operation (e.g., exams, enforcement, dispute resolution programs) and “oversight” exams that assessed “the quality of the individual examinations” that FINRA conducts on broker-dealers. According to Goodman, FISIO will “combin[e] those two functions into one,” which he described as “not only powerful but efficient as well.”

Goodman noted on a separate panel discussion at the conference that broker-dealer compliance personnel would not likely see FISIO that often. Rather, the group would “try to conduct our oversight examinations of FINRA as much as we can by simply looking at all of their records on how an exam was carried out. If, however, we feel like we need to come in to a broker-dealer to allow us to completely assess the quality of the exam, that’s when you’ll see us. But I anticipate that will be a fairly small minority of the oversight exams.”

In comments made at a Securities Industry and Financial Markets Association (“SIFMA”) conference in September, SEC Chairwoman Mary Jo White said FISIO would not necessarily press FINRA for specific reforms, but she called it “a good move to make, given the importance of FINRA and given [the SEC’s] scarce resources.”

The FISIO initiative can be traced to the uptick in newly registered SEC advisors. Over the past two years, Wyatt noted that more than 2,000 new advisors registered with the SEC, joining OCIE’s examination pool. This prompted a “significant number” of SEC broker-dealer examiners to shift to assessing investment advisors and investment companies. “We took resources from the broker-dealer program and moved them into” the advisor and investment company exams, Wyatt said. “As a result of doing that, we’re somewhat more reliant on FINRA. So in relying more on FINRA, we need to make sure we’re enhancing our oversight.”

Apart from these comments, there is very little information about the new office available online. For example, there is no dedicated page on the SEC’s website, and no additional guidance is currently available. It remains to be seen how FISIO will affect the industry, if at all.

This article was based on reporting by Melanie Waddell, Washington Bureau Chief, Investment Advisor Magazine and Mark Schoeff Jr., Reporter, InvestmentNews.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.


About this Author

Sarah Aberg Government Contracts Attorney Sheppard Mullin Law Firm New York

Sarah Aberg is an associate in the Government Contracts, Investigations & International Trade Practice Group in the firm's New York office.

Areas of Practice

Ms. Aberg’s practice encompasses securities regulation, compliance, and litigation as well as internal investigations and white-collar defense. She frequently represents broker-dealers and associated individuals who are the focus of SEC, FINRA, and other regulatory investigations. She has conducted numerous internal investigations into a wide...