Finra’s applications are down, but its new ads are up

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Two weeks ago, Elizabeth Warren expanded her long-standing beef with the Financial Industry Regulatory Authority, Wall Street’s self-regulatory body, mostly known as Finra.

In a letter carefully addressed to the SEC’s Gary Gensler, the senator asked why — according to a Bloomberg article — the number of broker-dealer fines fell last year to the lowest level in the regulator’s history, noting that . . .

• There were 426 enforcement actions in 2023, the fewest since Finra was established in 2007 (before that it was known as the National Association of Securities Dealers, or NASD).

• Similarly, the amount of fines imposed by Finra on brokers or dealers who violate the rules fell from $173.8 million in 2016 to $88.4 million in 2023.

“It’s not clear how this is an improvement in investor protection,” Warren said, unsurprisingly casting doubt on Finra’s own claim that this is due to its success in reducing the number of “bad actors.”

There is no evidence of this: The SEC’s enforcement numbers have remained relatively flat even as FINRA has declined, and a former FINRA senior counsel expressed skepticism that there are fewer bad actors today, saying, “on the contrary, once with so much growth. many more financial platforms. . . there are many more opportunities for abuse that are harder to detect.”

Finra has until Friday to respond to Warren’s list of questions and requests.

Good thing then that the self-regulatory body has been busy improving investor protection just last week in the form of a new advertising campaign – Get Your Head in the Trade – urging “new investors to take key steps before trading”.

Both ads focus on Meghan, a millennial-looking lady with a nice apartment, a dog and money in the stock market. In the first announcement, Meghan receives a stock alert, a push notification informing her that shares of meat-based tofu company Meafu (absurd!) are down 10%.

SEWAGE from Pixar In-Out Plato’s theory of the soul, the camera zooms in and then inside Meghan’s skull, where we are introduced to four anthropomorphisms of her dominant moods: the Dreamer (“we’ll be rich!”), the Impulsive (“the option of those options”), the Nervous ( “euuuugh”) and the Rational (“let’s dig a little first”). Needless to say, Rational Meghan seems to have the last word on Meafu. Finra’s second announcement, Meghan Checks an AI Pick, seems somewhat derivative.

Both ads link to a new webpage, FINRA.org/tradesmart, designed to equip investors with “knowledge, skills and tools” through quizzes and surveys. In the name of public service, some screenshots:

. . . None of this will have been in vain if it helps even one retailer to think etc.

But some critics find it odd that Finra should do more than run high-production-value, little-viewed ads. Former Amex and NASD attorney and now-retired BrokeAndBroker.com author Bill Singer called the ads “trash that passes for modern Wall Street regulation” on LinkedIn:

Instead of doing the hard work of regulating, FINRA issues idiotic warnings and offers nonsensical advice. A waste of money and resources – all sanctioned by a useless board of governors.

In response to which, Finra told us:

From an investor’s perspective, it is much better to prevent harm than to punish it after it has been done. Consistent with our mission to protect investors and ensure market integrity, we encourage new investors to make informed decisions and provide them with knowledge and resources to help them invest successfully and protect themselves.

Extremely important to note: The campaign is in addition to FINRA’s regulatory program, including market surveillance, firm examination, risk monitoring, and enforcement. I urge you to consider the full breadth of our self-regulatory role, succinctly described here.

It also pointed out that the ad campaign was funded entirely from the roughly $70 million levied against Robinhood in 2021, which remains the largest penalty ever ordered by the regulator. We really hope they didn’t throw everything at it. The second ad has racked up 59,000 views (anything AI is hot these days, even stuff that mocks it), but the first is still stuck in the mid-hundreds.

We will do another post on Finra’s response to Warren once it is published. Until then, remember GYHITT.