Serious questions are being raised about the effectiveness of the Financial Industry Regulatory Authority (FINRA) and whether the Securities and Exchange Commission (SEC) spends enough time overseeing this self-regulatory agency.
In a report issued late Wednesday, the Government Accountability Office (GAO) said FINRA "may be missing an opportunity to systematically assess whether its rules are achieving their intended purpose and take appropriate action, such as maintaining rules that are effective and modifying or repealing rules that are ineffective or burdensome."
Moreover, the report said, by not reviewing what steps FINRA takes in reassessing its existing rules, the SEC may not capture sufficient information to form an opinion about FINRA's efforts to review its rules.
The report also says that the GAO found that the SEC has conducted limited or no oversight of other aspects of FINRA's operations, such as governance and executive compensation.
The SEC defended itself by saying that the operations of concern to the GAO "were not historically considered due to competing priorities and resource constraints."
SEC officials explained that agency officials are focusing its resources on FINRA's regulatory departments, "which were perceived as the programs that have the greatest impact on investors."
But the GAO said that SEC officials "generally agreed with the GAO's recommendations" which are that the SEC should encourage FINRA to conduct retrospective reviews of its rules and that the SEC should establish a process for examining FINRA's reviews.
