Susan Schroeder, the former head of enforcement and Management Committee member at the Financial Industry Regulatory Authority (FINRA) now partner at WilmerHale, and Jessica Notebaert, a counsel at WilmerHale who focuses her practice on securities litigation and enforcement matters, collaborated to write and publish in Bloomberg Law the article, “De-Centralization and Duplication in Broker-Dealer Regulation.”
Introduction: In April 2020, the Financial Industry Regulatory Authority and nearly all of the national securities exchanges announced they had formed a Cross-Market Regulation Working Group (CMRWG) to share information and reduce unnecessary duplication in the participants’ regulatory efforts.
This development comes at a time when the exchanges are increasingly expanding their role in conducting enforcement investigations and prosecuting enforcement matters. Although FINRA and the exchanges currently coordinate and effectively centralize most enforcement investigations, recent changes indicate a move toward a more decentralized model and the possibility that exchanges may independently bring significant disciplinary cases against brokers.
On August 21, 2020 the SEC proposed a framework for FINRA's and the exchanges’ access to cross-market trading data that could further impact whether the exchanges will conduct more independent investigations. This article describes how enforcement investigations among FINRA and the exchanges are currently coordinated, recent changes that indicate a move toward a more decentralized model, and potential ways to mitigate the duplication that can result.
As brokers steer their businesses through the challenges of the ongoing pandemic and economic crisis, taking advantage of the CMRWG may be a critical way for brokers to reduce the burdens of multiple investigations and enforcement actions.
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