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Project on Government Oversight

POGO Calls for Increased Oversight of Financial Self-Regulators

Related Content: Financial Oversight, FINRA
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February 23, 2010

The Project On Government Oversight (POGO) sent a letter today to the congressional committees tasked with financial oversight urging them to challenge the government's reliance on private financial self-regulators such as the Financial Industry Regulatory Authority (FINRA).

FINRA, which oversees thousands of securities brokerage firms that do business in the U.S., is just one of many self-regulatory organizations (SROs) that feature prominently in the nation's financial regulatory regime. In its letter to Congress, POGO argued that FINRA and other SROs have an incestuous relationship with the industry they are tasked with regulating, and therefore should not be trusted with the important job of protecting the investing public.

Although FINRA is currently seeking to expand its authority and is defending its record in paid advertisements, the organization actually has an abysmal track record of regulating the securities industry. SROs such as FINRA failed to prevent virtually all of the major securities scandals dating back to the 1980s. And in recent years, under the leadership of current Securities and Exchange Commission (SEC) Chairman Mary Schapiro, FINRA failed to regulate many of the larger firms that were at the heart of the financial crisis, including Bear Stearns, Lehman Brothers, and Merrill Lynch, and also failed to detect the Ponzi schemes run by Bernie Madoff and R. Allen Stanford. Amidst the economic collapse of 2008 during which FINRA itself lost $568 million in its investment portfolio, and despite its failure to adequately conduct oversight of the securities industry, FINRA awarded its top 20 senior executives $30 million in salaries and bonuses.

As POGO wrote in its letter to Congress, "the cozy relationship between FINRA and the securities industry has resulted in pervasive conflicts of interest, and ought to raise doubts about whether FINRA can ever be an effective regulator."

“FINRA’s disastrous track record should be all the evidence Congress needs to conclude that self-regulators can’t be trusted with protecting investors,” said POGO Executive Director Danielle Brian. “Our fragile economy shouldn’t be left in the hands of a regulator that’s in bed with the same industry that brought the financial system to the brink of collapse."

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO’s investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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