FINRA Chair Murray Ironically Argues Against Self Regulation

November 4, 2021

In the latest foray into "Environmental, Social, and Governance" ("ESG"), CNBC offers us an extensive interview with FINRA's Chair Eileen Murray, formerly Co-Chief Executive Officer of Bridgewater Associates. FINRA's Eileen Murray says government needs to regulate ESG for there to be a real transformation / The Sharpe Angle: FINRA'S Eileen Murray explains why she thinks criticism of government ESG regulation 'is B.S.' ( by Leslie Picker)

I will leave it to my audience to read FINRA Chair Murray's remarks and/or watch her interview by CNBC's Leslie Picker. Draw your own conclusions and inferences. For me, I think it clear that Murray is a proponent of robust corporate disclosure of various ESG metrics -- we likely concur on both the need for transparency and the goal of instigating corporate reform to better redress generations of racism, sexism, and anti-consumer practices. As to how best to get things rolling, Murray offers, in part, this observation:

I think we need to start with the companies and I think that investors have a right to know, is what they're reading really accurate. What does it really mean? Do they really know when you look at all the money that's going into these things? So that's where I think it has to start. Now, some people say, "Well, you know, I don't think government should get involved in this." Well, if they don't, I don't see how it changes. I don't see this being self-corrected by industry, or companies. And so when you look at all that money going in that people are investing, when you look at the implications, of not really making significant progress with climate change, or you know, fuel waste, etc, how we're polluting our planet, it just makes no sense to me to not have a standardized way of looking at this. We'll make mistakes initially. But for God's sake, let's get started on the path to have great disclosure, great accountability, and great transparency, which I think will lead to transformation.

An odd view coming from someone who leads Wall Street's largest self-regulatory-organization. Murray minced no words when she said that without government involvement pushing ESG "I don't see this being self-corrected by industry or companies. . . ." Those were not my words but the comments from the head of a self-regulatory-organization. Murray doubles down on her view that government regulation is required to fix the problems cited in ESG and to develop the reporting protocols:

Picker: Some critics would argue that by the government focusing on this and making sure that there's transparency and disclosure within corporate America, as well as investors in terms of how they market things as ESG, that kind of sidetracks them from from the bigger issues that regulators and government should be just focused on solving things like climate change, and focused on figuring out how to increase opportunity for a diverse set of people, as opposed to kind of taking this action. What would you say to that?

Murray: I think that, honestly, I think it's BS. What I mean by that is, you can do both. If you want government to go fix the big problems of climate change, and DE&I, why wouldn't you want them to also help you report on it? Who is going to do it, if not the regulators? Who's going to pull it together? What I do think though, Leslie, is that the regulators need to work closely with business. And I don't see that harmonization happening anymore. . . . so I'm not saying to leave business out. I'm not saying to leave the regulator's out. I'm saying, let's all get together and figure this out together. But I don't for a minute think that if the regulations are focused solely on climate change or DE&I without disclosure without metrics, how do we know it's working? How do the regulators know it's working?

In advocating for government regulation, FINRA's Chair muses that "regulators need to work closely with business;" however, Murray admits when it comes to the government and the private-sector partnering for ESG regulation, she doesn't see "that harmonization happening anymore." Not a whole lot of let's just go with the old self regulatory approach and allow corporate America to set its own goals and metrics. Further, Murray makes it quite clear that:

[A]nd that's why I'm coming back to this governmental piece, this regulatory piece. And believe me, if you asked me 20 years ago, should we have government or regulators involved in diversity, I'd say no, companies will get there, they'll do it on their own, it's the right thing to do, it's great for business. Well, I was wrong. I was dead wrong. 

Bill Singer's Comment

In pressing for government regulation and intervention into the ESG arena, Murray seems to have forgotten that she speaks as Chair of a non-governmental, so-called self-regulatory-organization, which many -- including this author -- finds an outdated, conflicted, and failed approach to the regulation of our financial markets. FINRA is run by a Board of Governors for which the voting for elected Governors is limited to its FINRA member firms to the exclusion of the hundreds of thousands of the industry's associated persons and countless millions of public customers. Given the stakeholders excluded from voting at FINRA and the self-regulator's gerrymandered Board, it is truly ironic that the clarion call for ESG reform via government intervention comes from such a compromised organization. 

In response to  "Special Notice: Engagement Initiative / FINRA Requests Comment on Potential Enhancement to Certain Engagement Programs / Comment Period Expires May 5, 2017." I submitted a Comment on May 30, 2017 submission to FINRA, in which I noted, in part on Page 11 that:

I urge FINRA to reinvent itself as a "private sector regulatory organization" ("PSRO") and to expand and enhance its mission from one for the broker-dealer industry towards one for the larger private sector served by the financial services community. In furtherance of that change, the PSRO would serve in a holding-company role that oversees each of three regulatory divisions dedicated to Small member firms (smallest 25% of broker-dealers), Mid-sized member firms (50% of broker-dealers measured from midpoint), and Large member firms (largest 25% of broker-dealers). Pursuant to that restructuring, each division would draft a rulebook responsive to the unique needs of its constituency. The PSRO would fully enfranchise associated persons, and provide for the proportionate representation for such stakeholders as public customers, issuers, and regulators. Without question, a PSRO Board seat should be set aside for an investors' advocacy group such as PIABA. 

As part of reimagining the SRO into a more expansive PSRO, all industry registration and continuing education should be undertaken directly by an applicant through the PSRO holding company and not through the member firms. FINRA should establish an Anti-Fraud Fund whereby all defrauded public customers would obtain restitution in the event that member firms or associated persons fail to timely honor any awards for compensatory damages, costs, and fees. Finally, I would abolish mandatory arbitration for customers and associated persons.

Unlike FINRA Chair Murray, if you had asked me 20 years ago whether we should have government or a Wall Street self-regulatory-organization involved in regulating the financial markets, my answer would be no different than than it is today. The self regulation of Wall Street by FINRA's largest member firms and special interests is not the right thing for the industry or the investing public. I was dead right 20 years ago and I'm dead right today.