FINRA’s Conflicts of Interest Report: Bridging the Great Divide?

great divideFINRA issued a report on conflicts of interest within the broker-dealer industry last month.  It is the result of a review initiated in July 2012 at a number of large broker-dealer firms to shed light on current industry practices and is meant to highlight effective conflict management practices and identify problem areas.

“While many firms have made progress in improving the way they manage conflicts, our review reveals that firms should do more,” FINRA chairman and chief executive Richard G. Ketchum said in a news release. “To help firms analyze the conflicts they face and implement a conflicts management framework appropriate to the size and scope of their business, we are publishing examples of how some large broker-dealer firms address conflicts.”

The report highlights the following key areas:

  • An enterprise-level approach tailored to suit the scale and complexity of the firm that starts with the tone from the top.
  • Product review processes that assess and mitigate risks associated with conflicts pre-and post-launch.
  • Independence in the wealth management business regarding the product offering and a compensation structure that minimizes conflicts.

The report is an interesting read.  It’s clearly geared to be a roadmap for conflicts avoidance and disclosure. Sounds familiar, doesn’t it?

It is also clear from the report that FINRA is ready to introduce new rules if no progress is made.  Stay tuned.

As always, if you have questions or comments, please call, e-mail or tweet me @Bettina Eckerle.

Eckerle Law offers legal advice in a variety of transactional and regulatory matters and serves companies’ plenary business law needs. Its founder, Bettina Eckerle, is a veteran of Debevoise & Plimpton and Wachtell, Lipton, Rosen & Katz.  She also served as the General Counsel of two companies en route to IPO. Please visit the Eckerle Law website for more details.