Will a Trump Administration Really Axe Finra?

FINRA gets a bad rap for being a self-regulator that lets the “inmates run the asylum,” but this time the attacks are coming from a conservative think tank with serious sway over a potential GOP agenda next year.

Project 2025, a conservative manifesto created by the right-leaning lobby group The Heritage Foundation, unveiled plans to cut several government offices including FINRA. The document calls for the self-regulator to be folded into the existing framework of the Securities and Exchange Commission, saying the agency is “ineffective, costly, opaque, and largely impervious to reform.” Ouch. 

Oh, That Amendment?

For all the benefits of oversight, it’s certainly hard to argue that “opaque” jab. A lawsuit filed in federal court last week is claiming FINRA’s in-house enforcement system is unconstitutional because it doesn’t let members have their day in court, a.k.a. the Seventh Amendment. An unrelated Supreme Court decision in June backed up the argument, forcing the SEC to hold legal proceedings in an actual court of law. Legal experts who spoke with The Daily Upside said the ruling could impact other regulators.

“FINRA’s hour has passed, and it’s time for Congress to end this failed experiment in Wall Street self-regulation,” said Bill Singer, a lawyer with more than 40 years’ experience in securities law.

The agency certainly has a reputation for being tight-lipped about internal proceedings (maybe even more so than the SEC). Barring a complete shutdown of the agency, the document suggested improvements to overall transparency and finances:

• Any penalties collected from members should go into a newly established investor reimbursement fund or to the Treasury. (That means FINRA can’t fund itself through fines.)
• FINRA must produce “meaningful” cost-benefit analysis with respect to major rules and annual budget reports. 
• Proposed rule changes must be made available to the public and undergo a comment period.

“Ridiculous and Abysmal.” Still, former president Donald Trump has thrown cold water on the idea that the document could sway policy under his administration. According to reports, Trump said in a Truth Social post that he found certain proposals in the document “absolutely ridiculous and abysmal,” and added that he had no ties to its architects. He has, however, previously voiced admiration for The Heritage Foundation president Kevin Roberts, while many of the document’s co-authors and collaborators served in key roles in his first administration.