Congress Weighs Axing FINRA. But Is SEC Ready to Pick Up the Slack?

Do we really need FINRA?

That was the question lawyers, industry stakeholders and federal representatives were asking last week during a House Subcommittee on Capital Markets hearing about the role of self-regulatory organizations. Members of Congress are considering related proposals including the Restoring Accountability in Market Supervision Act, which would transfer the rulemaking, examination and enforcement powers of the Financial Industry Regulatory Authority, a self-regulating industry body, to the Securities and Exchange Commission, greatly curbing FINRA’s influence or possibly even eliminating it. 

“When investors sign up for investor retirement savings with a financial advisor, they’re forced into FINRA’s industry-run private justice system,” Rep. Lisa McClain (R-Mich.), who introduced the bill last April, said during the meeting. The proposal was referred to the House Financial Services Committee and has seen little action since. McClain added that she disagrees with FINRA’s latest proposals to change its arbitration rules, arguing that it could roll back “investor protections to the 1980s, to a time before the financial crisis, the dotcom bust, or even Black Monday.”

The bigger question may be: Would the SEC be ready? Some policymakers believe bringing those responsibilities under one roof could streamline regulation and reduce duplication, said Jon Glass, partner in the financial crimes advisory practice at professional services firm SolomonEdwards. “At the same time, FINRA conducts thousands of examinations each year and is funded largely through industry fees rather than congressional appropriations,” he said. Moving those responsibilities into the SEC would raise practical questions about resources, capacity and how to maintain the specialized expertise that currently exists, he added.

The Grindstone

Axing FINRA is part of the GOP’s Project 2025, a manifesto of conservative agendas outlined by lobbying group The Heritage Foundation. The think tank calls FINRA “ineffective, costly, opaque, and largely impervious to reform.” While that may sound harsh, many in the industry share similar frustrations, said Larry Shumbres, CEO of wealthtech firm Archive Intel. “What I’ve heard from advisors, broker-dealers and asset managers, is that they would all prefer reporting directly through the SEC than FINRA,” he told Advisor Upside. “There’s less rules and regulations at the SEC level than there is at FINRA, so I think it would be a great thing for the whole industry,” he said.

• Last year, FINRA filed roughly 2,600 new arbitration cases — slightly more than in 2024 — and it closed almost as many, per FINRA data.
• Meanwhile, the SEC brought roughly 90 enforcement actions to advisors and their representatives in fiscal year 2025, down from 130 actions the year prior, according to law firm Sidley.

Can You Handle It? Even with SEC Chair Paul Atkins’ era of deregulation, there’s still the concern that the agency may not have the bandwidth to properly oversee the broker-dealer space, especially given that hundreds of employees left the agency last year. “If they’re not able to go out and enforce, that’s a huge drawback for the everyday investor,” Shumbres said.