Dem Lawmaker Questions If Finra Should Be Folded into SEC
MARCH 6, 2026 • TRACEY LONGO
The long-standing question of whether Wall Street’s primary broker regulator should even exist in its current form surfaced during a House hearing yesterday, as lawmakers debated whether the Financial Industry Regulatory Authority should ultimately be folded into the Securities and Exchange Commission.
Rep. Brad Sherman, the top Democrat on the House Financial Services Subcommittee on Capital Markets, said the fundamental policy question before Congress is whether regulation of brokerage firms should remain in the hands of a private self-regulatory organization such as Finra or be brought fully inside government.
“The policy issue before us is whether the SRO should be folded into the SEC,” Sherman said. “I am a very faithful agnostic on that issue. I do not know.”
Finra is not a government agency. It is a self-regulatory organization that operates under the jurisdiction of the SEC and oversees roughly 3,500 brokerage firms and about 620,000 registered brokers nationwide. The organization writes and enforces rules for broker-dealers, examines firms and runs the arbitration system that handles most disputes between brokerage firms and their clients.
The structure has long been controversial. Supporters say the model allows industry expertise to shape rules while keeping costs down for taxpayers. Critics argue it creates an inherent conflict because the regulator is funded largely by the same firms it oversees.
The hearing highlighted that tension. Investor advocates and securities lawyers warned lawmakers that the regulatory framework is drifting toward an “industry-first” posture that could weaken protections for retail investors.
Critics also pointed to Finra’s sweeping review of its arbitration system—the dispute-resolution forum that typically handles conflicts between brokerage firms and customers—as an example of reforms that could tilt further toward Wall Street.
Earlier this week, Finra issued a request for comment seeking feedback on more than 60 questions about its arbitration process, including arbitrator qualifications, eligibility rules and whether certain disputes should be heard outside the Finra forum.
Jennifer Shaw, executive director of the Public Investors Advocate Bar Association, told lawmakers the system already produces uneven outcomes for investors. According to statistics cited in her testimony, investors prevail in fewer than 30% of Finra arbitration hearings. Even when they win, collecting damages can be difficult.
In 2024, 37 cents of every dollar awarded to investors in Finra arbitration went unpaid, Shaw said, and roughly one in four awards was never collected. Between 2020 and 2024, about $80 million in arbitration awards went unpaid. “These investors did everything right,” Shaw told lawmakers. “They followed the rules, brought their claims and won—but they never received their money.”
Shaw urged lawmakers to consider creating an investor recovery pool funded by brokerage firms to compensate investors when arbitration awards go unpaid.
Another witness, Valerie Mirko, a partner and leader of securities regulation and litigation at Armstrong Teasdale, warned that potential changes could benefit repeat industry participants that frequently appear before arbitration panels, raising questions about whether the forum remains balanced.
The debate over Finra’s structure has surfaced periodically in Washington, but it has gained new attention in recent years as policymakers reassess the role of private regulators in overseeing financial markets.
A conservative policy manifesto prepared for the Trump administration’s transition in 2024 also proposed folding Finra’s responsibilities into the SEC—a rare area of overlap between some conservative policy thinkers and progressive critics who argue self-regulatory organizations may no longer fit modern markets.
Subcommittee Chairman Rep. Andrew Garbarino, R-N.Y., said such organizations play a powerful role in the financial system and must remain accountable to Congress. “These are not minor organizations,” Garbarino said. “Their decisions affect how our markets function.”
Finra’s annual budget has grown to roughly $1.5 billion, funded primarily through fees paid by the brokerage firms it regulates. Critics question whether the structure creates incentives that lean toward the industry.
Lawmakers also raised questions about compensation at the regulator itself. Finra CEO Robert Cook earned roughly $3.8 million in 2020 and could earn more in other years, according to figures discussed during the hearing.
Asked whether that level of pay was appropriate, Shaw declined to comment on the fairness of the compensation but said, “I would prefer to see some of those funds go back to defrauded investors.”
Finra defended its modernization effort. “Finra is committed to continuous improvement that draws on deep engagement with its members, the investing public and other interested parties,” a spokesperson said. “Finra strives to provide a fair, efficient and effective arbitration forum for all participants.”