Report Finds Conflicts Of Interest Common On FINRA Board

A new report warns that nearly half of the public governors on the board of the Financial Industry Regulatory Authority (FINRA) have ties with the investment firms, and other conflicts of interest. 

The report was issued by the Public Investors Arbitration Bar Association (PIABA) on November 15, indicating that six out of 13 of the “public governors” on the FINRA Board of Governors have industry ties, which could be considered conflicts of interest, particularly because those members are supposed to be representing investor interests on a board that arbitrates disputes between investors and the industry.

FINRA is a non-governmental agency that is responsible for overseeing the financial industry, handling all arbitration claims pursued against brokers or firms, alleging that that investments were mis-managed or mis-handled.

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The FINRA board includes the 13 public governors, 10 industry governors and a chief executive officer. Among the public governors with conflicts of interest, PIABA found that William Heyman, who is the FINRA chairman and one of the public governors, is the Chief Investment Officer of The Travelers Company. Another is Carol Anthony Davison, a board member of Legg Mason, Inc. It also includes Rochelle B. Lazarus, who serves on the boards of Merck & Co., General Electric, and is the director of the Blackstone board.

“Unfortunately, FINRA’s Board of Directors, called its Board of Governors, has public board members who have very deep ties to the securities industry thereby putting them in a potential conflict of interest situation,” PIABA President Andrew Stoltmann, a co-author of the report, said in a press release. “This report shows that many FINRA public governors have material Wall Street ties, serve on too many corporate boards to effectively represent the public, and face other conflicts of interest. The report raises a major red flag since FINRA’s public governors are supposed to play a vital watchdog role with Wall Street’s self-regulatory organization for brokerage firms, including setting the rules for how many protections ordinary investors receive when doing business with FINRA’s member firms.”

The report calls for FINRA to address the conflict of interest concerns by limiting the service of its public governors on other boards, and to look for more public governors who have expressed an interest in protecting investors, as opposed to public governors whose interests would clearly benefit from rules and rulings favoring brokers over investors.


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