Capital Markets Subcommittee Examines the Role of Self-Regulatory Organizations in U.S. Markets
Washington,
March 6, 2026
Yesterday, the Subcommittee on Capital Markets, chaired by Rep. Ann Wagner (MO-02), evaluated the accountability, efficiency, and transparency of the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB). On Transparency and Accountability of Self-Regulatory Organizations:
Subcommittee on Capital Markets Chairman Wagner said, “A recurring concern from smaller broker dealers and municipal advisors is that enforcement by Self-Regulatory Organizations, or SROs, can feel punitive rather than corrective. If the S in SRO reflects industry stewardship, incentives within the system should encourage compliance outcomes, not simply deterrence through enforcement.” Subcommittee on National Security, Illicit Finance, and International Financial Institutions Chairman Warren Davidson (OH-08) said, “FINRA exercises regulatory authority over thousands of firms, yet it is not subject to the Administrative Procedures Act, FOIA, or direct congressional appropriations. So members of this committee have had similar concerns about the structure of the Federal Reserve, for example.” Republican Conference Chairwoman Lisa McClain (MI-09) said, “Today, FINRA staff, not industry members, writes binding rules, investigates people, brings enforcement cases, holds hearings, issues large fines and can permanently end someone's career. Yet, FINRA is not subject to the same transparency laws as federal agencies. Its meetings are not fully open. Its records are not fully public. Now, if an organization exercises government level power, it should have government level accountability.” Rep. Marlin Stutzman (IN-03) said, “Hoosiers understand that the federal government has become increasingly bloated and unaccountable. President Trump is restoring that accountability, but I think it's also important for Congress to examine the self-regulatory organizations. Just because they aren't government agencies doesn't mean that they should be unaccountable and opaque to the industries they regulate and the American people.” On Governance and Structural Changes: Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence Chairman Bryan Steil (WI-01) said, “Congress tasked the MSRB with both industry rulemaking and creating a data repository. A significant part of the board's budget and staff time are devoted solely to the technology development side of that ledger, it appears. And some have raised concerns that MSRB looks a little bit more like a tech company than a regulator.” Rep. Mike Lawler (NY-17) said, “The SRO framework Congress created in 1934 reflected a very different marketplace, one with slower trading, fewer products, and far less automation. Today's markets operate at a scale and speed that would have been unimaginable at that time. That raises a fundamental question about whether the statutory foundation for SRO still fits the modern environment, or whether Congress needs to revisit the model.” Rep. Andrew Garbarino (NY-02) said, “For the first 35 years after Congress created the Municipal Securities Rulemaking Board, there was no statutory requirement that a majority of the board be made up of public members. That changed in 2010, when Dodd-Frank required that a majority of the MSRB’s board come from the public sector. Legislation before us today, the MSRB Reform Act, would revisit that requirement and change the board's composition.” Witnesses Echoed the Work of the Committee: Mr. Onnig Dombalagian, Professor of Law, Tulane University School of Law said, “There are concrete steps Congress could take in the short term to reinforce FINRA’s effectiveness within the current self-regulatory paradigm. One of the principal areas of concern is the continuing asymmetry between the regulation of broker-dealers and other financial services providers. Congress could give FINRA, through the SEC, enhanced authority to coordinate collection and dissemination of information through BrokerCheck regarding the disciplinary history of all securities and financial professionals, including, for example, investment advisers and insurance professionals. Such authority, in tandem with initiatives to standardize and preserve the integrity of the information provided through BrokerCheck, would provide invaluable information to investors and consumers of financial services.” Ms. Valerie Mirko, Partner & Leader of Securities Regulation and Litigation, Armstrong Teasdale LLP said, “FINRA’s authority to enforce—which exists pursuant to delegated authority—effectively allows FINRA to terminate a person’s or firm’s ability to operate in the industry, which in turn raises significant property and reputational interests that necessitate careful consideration and government protection of fairness and due process. As the regulatory landscape currently stands, firms cannot be expelled without SEC review and approval. Individual bars of industry representatives are not subject to the same level of regulatory scrutiny. Once FINRA has rendered a decision to bar an individual from the industry, that sanction becomes effective immediately. Therefore, individuals are not able to obtain a stay absent persuading the SEC to grant extraordinary relief to stay the effectiveness pending the completion of the Commission’s review. Because SEC review is an integral component of the statutory oversight framework, the absence of a uniform automatic stay across all industry expulsions rendered by FINRA can result in irreversible professional and economic harm prior to final SEC review. Even if a sanction is later modified or reversed, the interim deprivation may not be fully remediable.” ### |