Lawmakers Question Finra’s Authority as Investor Group Warns of Arbitration Changes
by Miriam Rozen
March 6, 2026
Lawmakers from both parties questioned on Thursday whether the Financial Industry Regulatory Authority should even exist, while industry representatives and investor advocates told a congressional subcommittee that the self-regulatory organization needs stricter oversight from the Securities and Exchange Commission.
Finra “has grown far beyond” the role Congress originally envisioned, U.S. House Rep. Lisa McClain (R-Mich.) said during a hearing of a House Financial Services subcommittee.
The regulator “writes binding rules, investigates people, brings enforcement cases, holds hearings, issues large fines and can permanently end someone’s career” while not being subject to the same transparency laws as federal agencies, she said, echoing comments of other lawmakers on the subcommittee.
“This is not a partisan concern,” McClain said.
The subcommittee scheduled the hearing to review the role of self-regulatory organizations, including Finra and the Municipal Securities Rulingmaking Board, in U.S. markets. Rep. Brad Sherman (D-Calif.) questioned whether Finra should be folded into the SEC.
The debate echoed a hearing by the same subcommittee roughly two years ago when lawmakers also criticized Finra. In both instances, they also highlighted Finra Chief Executive Officer Robert Cook’s $3.8 million compensation package.
At Thursday’s hearing, Rep. Ann Wagner (R-Mo.), subcommittee chair, pressed for Finra to follow through with a pledge that its enforcement chief, Bill St. Louis, made in a blog post on Monday to publish an enforcement manual. The SEC has published a similar manual for two decades to outline its investigative process for the public.
The topic of Finra’s recent consideration of possible changes to its arbitration procedures highlighted a sharp divide between industry representatives and investor advocates. The two sides squared off over an industry push to allow participants to scrap arbitrators following adverse rulings or limit high-dollar awards.
Prior to the hearing, the Public Investors Advocate Bar Association President Michael Bixby said in a statement that although “industry already prevails in over 70% of the final arbitration proceedings, FINRA appears to be more interested in granting the industry’s wish lists for industry protection to make the FINRA arbitration forum even more unfair for investors.”
Industry representatives, in contrast, proposed “correcting weaknesses” of Finra’s arbitration process, according to written testimony from Valerie Mirko, a partner and practice leader at Armstrong Teasdale, a law firm that regularly represents brokers and brokerages.
Mirko also called for the SEC to examine potential “improved mechanisms and processes” that would allow claimants and respondents to reject or challenge arbitration panel candidates and to consider “limiting or eliminating punitive damages in arbitration awards.”
Investor advocates argued that those changes would tilt the process further toward brokerage firms.
Jennifer L. Shaw, PIABA’s executive director, said in written testimony that Finra’s discussion of potential “reforms” follows “the path towards securities industry appeasement and against the best interests of investors.”
Finra seeks to “weather attacks against it by Project 2025,” a political initiative published in April 2023 by the Heritage Foundation, as well as litigation against it in federal court, Shaw said in her testimony.
Shaw criticized Finra for recently changing arbitrator qualification requirements “without notice or opportunity for public comment,” which narrowed the available arbitrator pool.
“The securities industry has long complained of those they deem to be not sophisticated enough being on FINRA arbitration panels, as if juries in courtrooms around America are only comprised of lawyers and accountants,” Shaw stated. “Finra heeded the message from the securities industry to ‘professionalize’ their arbitrator pool and made material changes in the dark of night.”
Shaw also criticized Finra for granting requests by brokerage firms to remove arbitrators who previously ruled against them, which she said undermines the neutrality of the ranking process.
“This is a drastic change to the equality of the arbitrator ranking process and allows brokerage firms to remove arbitrators from the pool in a given case without having to use one of their pre-emptory strikes available for each case,” Shaw added.
Finra last week released more than 60 questions about potential reforms to its arbitration process. Shaw said that the move also signaled willingness to appease the industry, particularly in light of a push by firms to eliminate or limit punitive damages in arbitration.
Ken Bentsen Jr., chief executive of the Securities Industry and Financial Markets Association, argued in December that Finra should modify rules that prevent firms and customers from agreeing to limit punitive damages in arbitration, even when such limits are allowed under state law.
Allowing parties to follow applicable law, Bentsen said, “would help promote consistency and predictability,” particularly given the limited ability to appeal arbitration awards.