A congressional hearing last week put one of the securities industry’s most prominent regulators at the center of a longstanding policy debate, one that compliance professionals have good reason to follow closely.
The House Subcommittee on Capital Markets convened to examine how self-regulatory organizations (SROs), including the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board, fit into today’s regulatory landscape and whether the current oversight structure adequately serves investors and the public.
Lawyers, academics, and industry stakeholders testified on the effectiveness of the current system and weighed in on potential structural reforms.
Proposed Bill Would Shift Regulatory Authority
The hearing centers on the Restoring Accountability in Market Supervision (RAMS) Act, introduced by Rep. Lisa McClain (R-MI). The proposal would transfer FINRA’s rulemaking, examination, and enforcement authority to the U.S. Securities and Exchange Commission.
Supporters argue that placing those responsibilities under the SEC would increase transparency and public accountability, noting that as a private organization, FINRA is not subject to the same transparency laws as federal agencies. Critics contend that the SRO framework brings valuable industry expertise and operational flexibility and raises practical questions about whether the SEC has the capacity to absorb FINRA’s functions without creating regulatory gaps or increased costs for industry participants.
The bill is currently under discussion and has not been adopted.
Balancing Accountability and Industry Expertise
Legal experts at the hearing noted that while FINRA exercises significant regulatory authority within the securities industry, its powers differ meaningfully from those of federal agencies. FINRA can impose fines, disciplinary actions, or industry bars on registered individuals and firms, but it does not have criminal enforcement authority. Participants acknowledged that existing accountability mechanisms, including regulatory notice-and-comment procedures and review processes for disciplinary decisions, are already part of the framework governing SROs.
Also discussed at the hearing was FINRA’s recent regulatory notice seeking comment on modernizing its arbitration rules and processes, which drew varying perspectives from those who testified.
What This Means for Compliance Teams
While the hearing focused primarily on structural questions about market regulation, it reflects continued attention from lawmakers on investor protection, transparency, and regulatory accountability.
For compliance professionals, the RAMS Act is worth monitoring. Any shift in how FINRA’s rulemaking and examination functions are administered could affect exam cycles, rule interpretations, and disciplinary processes for broker-dealers. Even if the bill does not advance, the ongoing debate may drive meaningful reforms at FINRA, particularly around enforcement and arbitration, making it a development worth keeping an eye on.
