Who oversees the private, Wall Street funded police detail, aka FINRA, that I have long maintained operates as little more than meter maids?

The SEC, that’s who.

Or at least the SEC is supposed to regulate and oversee FINRA. Whether the SEC effectively oversees an organization which on its face appears to be loaded with conflicts of interest — if not much worse — is the stuff on which books are written.

As a strident critic of both the self-regulator and the self-regulatory model, I have long called for FINRA’s doors and windows to be opened so America can really learn what goes on within this organization and its relationships with the very banks on Wall Street that fund it. Who seems to be joining my call for a serious review of FINRA? 

None other than a recently appointed SEC commissioner Kara Stein who in the midst of a talk just last week had this to say:

And we must better understand and clarify the role of the FINRA, which has taken on more and more regulatory functions.  In recent years, through private contracts, FINRA has come to run many critical market surveillance functions, from monitoring for insider trading, to looking for cross-market manipulations.  While this may be one way to deal with increasing market complexity, it arguably has also created new challenges: including how to effectively oversee a very important, but private regulator.

We need to be thinking about the interactions between FINRA and its customers, other market participants, the Commission, and regulators and participants in related markets.

This public statement is long overdue and if it is not a de facto admission that the SEC has failed to properly oversee FINRA, I do not know what is.

Are you listening Mary Schapiro?

The key questions now are: what will the SEC do and what will they share with the American public on this front? Let’s give Commissioner Stein some assistance and tell her to air the dirty laundry within FINRA in the following fashion:

1. Call for FINRA to undergo an independent outside audit.

2. Call for FINRA to be accountable under the Freedom of Information Act.

3. Call for FINRA to not be afforded the privilege of absolute immunity. I mean, absolute immunity without total transparency is little more than a license to steal, don’t you think?

4. Call for FINRA to release all the information, financial and otherwise, pertaining to the merger between the NASD and the regulatory arm of the NYSE to form the self-regulator.

That’s a start, Commissioner.

No softball around here. After you get the information and answers to points 1-4 above so that you can “better understand and clarify the role of the FINRA,” can we count on you to share all of what you learned with the American public? FINRA does answer to you, right ? And you and your colleagues at the SEC do answer to us, the American public, don’t you?

Or you are supposed to, right?

Transparency is still the great and only disinfectant. Especially when it comes to the backroom where those overseeing the meter maids may be cozying up to the heavyweight firms on Wall Street that provide the bulk of the funding for FINRA.

Navigate accordingly.