InvestmentNews (December 2, 2017) -- This is not the first time the regulator has been called out on the makeup of its board.

The bylaws of the Financial Industry Regulatory Authority Inc. state that it must always have more public representatives than industry representatives on its board of governors. That makes sense for a regulatory body that is supposed to be dedicated to investor protection and market integrity. But a new report raises, yet again, the question of whether Finra is serious about its pledge to protect investors, or is simply paying lip service to that mission.

The report, which comes from the Public Investors Arbitration Bar Association, charges that because of their ties to the securities and financial services industry, several of the 13 public members on Finra's board have conflicts of interest that prevent them from truly representing the interests of investors.

As examples, the report highlights the connections to Wall Street of one former public governor and five current public governors, including William Heyman, the current chairman of the Finra board. Before his current stint on the board, Mr. Heyman had a long career in the securities industry and was the chief investment officer for The Travelers Companies Inc., yet he is considered a public governor rather than an industry governor. Another public governor, Eileen Murray, is currently the co-CEO of hedge fund Bridgewater Associates.

Granted, PIABA is no friend to Finra. Member attorneys make their living bringing investment claims against the brokerage industry and the organization has been a critic of the regulator in the past. But the report was co-authored by Benjamin P. Edwards, an associate professor of law at the University of Nevada-Las Vegas, who presumably has no ax to grind with Finra.

This is not the first time Finra has been called out on the makeup of its board. In September, an InvestmentNews special report highlighted the same ties of public governors to the securities industry. In some cases, these governors are serving on the boards of financial services companies at the same time they are sitting on Finra's board.

The report points to two public governors: Carol Anthony Davidson, who also serves on the board of Legg Mason; and Shelly Lazarus, who also serves on the board of Blackstone. Both these governors would seem to have conflicts of interest as both Legg Mason and Blackstone rely on brokerage firms to sell their products.

To remedy the situation, the PIABA report recommends that Finra reach out to investment advocates to serve on the board. This is a sensible suggestion and one that Finra should pursue. Who better to represent the public on the board of an organization supposedly dedicated to investor protection than individuals who have dedicated their careers to fighting for the rights of investors?

In its defense, Finra has offered up the lamest of explanations for maintaining the status quo. Essentially, it says the affiliations of its board members have no bearing on whether they can represent the public in an unbiased and objective manner. This explanation undermines the very reason that Finra deemed it necessary to have public governors in the first place. If a person's background and affiliations don't matter, then why not just have all industry governors and ask them to keep the public's interest at heart?

Since Finra's new CEO, Robert Cook, came on board last year, he has touted his listening tour and Finra 360, a top-to-bottom assessment to determine if the regulator is fulfilling its mission. It is one thing to listen and evaluate and another to act. It is time for Finra to clean house by getting rid of those public governors who are industry representatives in sheep's clothing. It should be easy to find qualified individuals who are true advocates for consumers and the investing public to take their place.