FINRA’s Rulebook Revamp Takes a Beating at House Hearing
MARCH 6, 2026
What You Need To Know
- The FINRA Forward initiative, entering its second year, is facing criticism from both investor advocates and the securities industry.
- Lawmakers must monitor whether FINRA Forward “produces genuine rule changes, not just consultation documents,” said Bond Dealers of America’s CEO.
- PIABA’s executive director called recent reg notices “lengthy, unwieldy and ambiguous.”
The Financial Industry Regulatory Authority’s revamp of its rulebook, known as FINRA Forward, came under scrutiny Thursday during a House subcommittee hearing, with a top investor advocate arguing the initiative has resulted in “unwieldy” rulemaking and is a “path towards securities industry appeasement.”
The hearing, held by the House Financial Services Capital Markets Subcommittee, examined a broad swath of issues regarding FINRA as a self-regulatory organization. Those testifying generally agreed that FINRA should maintain its independence, but oversight of FINRA by the Securities and Exchange Commission should be more robust. Lawmakers should also keep a close watch on FINRA Forward, launched last April, they said.
FINRA “is entering the second year of its FINRA Forward initiative with a stated goal of modernizing its rulebook and enhancing compliance tools and strengthening fraud protections,” Valerie Mirko, partner and leader of the securities regulation and litigation practice at Armstrong Teasdale in Washington, told the lawmakers. “This initiative has already resulted in greater transparency of long-standing FINRA operations.”
However, Mirko added, “there is a role for Congress to play to make legislative changes to the overall framework.” Mirko recommended that every bar or expulsion decision made by FINRA be reviewed and approved by SEC.
Mike Nicholas, CEO of the Bond Dealers of America, said the group is “genuinely encouraged” by the launch of FINRA Forward, but he urged the subcommittee “to monitor whether it produces genuine rule changes, not just consultation documents.”
FINRA Forward “is the kind of rigorous self-examination an effective SRO should undertake, and BDA participated in the comment process,” Nicholas said. “But encouragement must be paired with candor. FINRA Forward is a commitment, not yet a result.”
One example, Nicholas continued, is FINRA’s ongoing review of its “modern workplace” framework, including remote supervision under Rule 3110. “Supervision has changed drastically since Rule 3110 was established,” he told the lawmakers. “Work habits have evolved since the pandemic. Bond dealers use technology, not proximity, to supervise their traders and others. Supervision rules should reflect this reality.”
Growing Concerns
Jennifer Shaw, executive director of the Public Investors Advocate Bar Association, a group of lawyers representing investors in disputes with the industry, said that “over the last year PIABA members have grown increasingly concerned with recent changes by FINRA.”
Unfortunately, Shaw said in her testimony, FINRA Forward “has chosen the path towards securities industry appeasement and against the best interests of investors, seemingly to weather attacks against it by Project 2025 and as a reaction to litigation filed against it in the federal court system.”
Project 2025, a blueprint by the Heritage Foundation for conservative government, has proposed eliminating FINRA and folding it into the SEC.
“FINRA Forward appears to bow to the will of the securities industry in 2025 and early 2026 in ways not seen by PIABA since the 1990s,” Shaw told the lawmakers.
The first “serious change FINRA made to its arbitration program, which was done without notice or opportunity for public comment, was to change the requirements to serve as an arbitrator, narrowing the available arbitrator pool,” Shaw continued.
“FINRA heeded the message from the securities industry to ‘professionalize’ their arbitrator pool and made material changes in the dark of night,” Shaw said, and now requires that arbitrators must possess a four-year college degree and have at least five years of paid professional experience.
New Approach to Rulemaking: ‘Unwieldy’ Reg Notices
Shaw pointed to Regulatory Notice 26-06, released Monday by FINRA, which Shaw called “a 70-page opus containing 275 endnotes, purportedly directed at ‘modernizing'” FINRA arbitration rules.
“Despite platitudes about investor protection being at the core of its mission, Regulatory Notice 26-0619 makes it clear that FINRA will return investor arbitration to the status quo ante from more than a generation ago,” Shaw said.
The Notice is “also emblematic of a trend with FINRA’s general regulatory notices and the FINRA Forward initiative,” Shaw continued. “FINRA appears to have a new approach to rulemaking.”
FINRA’s most recent regulatory notices, 25-04, 25-06 and 25-07, “became lengthy, unwieldy and ambiguous,” Shaw told the lawmakers. “In fact, on at least one occasion, PIABA members had to request a meeting with the FINRA general counsel’s office to try to determine the responsive information sought by the notice. FINRA has further been forced to extend additional response time on these notices.”
FINRA’s Regulatory Notice 25-05, dealing with outside activities, was also “lengthy and included multiple attachments including a flow chart to attempt to explain the notice,” Shaw said.
FINRA has sent the rule to the SEC “with modifications that removed supervisory and recordkeeping requirements for investment adviser activity,” Shaw said.