“Wall Street is the heart of capitalism, and it has a culture of success, wealth and profitability, and a lot of the compliance issues coming up in the broker-dealer community are about the tipping point from being successful and making money to that next level of going over the line ethically to achieve those things,” says Kraskin from Compliance Science.
“We encourage those who we trust our money with to make money for us,” he adds. “Maybe the place to take this to is the concept of good alpha versus bad alpha. Is the firm pushing for alpha at any and all costs? If that’s the culture of the organization, that’s likely to lead to corner-cutting and those unethical situations with brokers selling anything they can to an unknowing, unqualified investor just to earn a commission.”
Regarding Finra’s current scrutiny of company culture, Callcott from Sidley Austin believes the industry has made strides on that front over the years.
“I think the large firms are much less tolerant of people with disciplinary problems just because they’re a big producer,” he said. “The culture is very different from back in the limited partnership days of the late-80s and early-90s. I think what Finra and other regulators are concerned about is when they dig into specific problems they find particular silos or desks or units within firms that are still problematic.”
Callcott adds that another issue to think about is who within brokerage firms will be responsible for monitoring culture.
“Will this fall to compliance officers, and if so will Finra bring cases against them for failing to establish an appropriate culture at a firm?” he asks. “If that’s the direction Finra goes with this, I think there will be a great deal of concern within the industry about that.”
Whatever comes of this, at the very least Finra’s emphasis on company culture is a positive development for investors.