FINRA may be under attack on constitutional grounds in multiple lawsuits, but a pair of lawyers who track the agency's disciplinary cases say they don't expect it to be dismantled anytime soon.
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The results were released after a year that
FINRA's recent legal and political challenges
The embattled brokerage firm Alpine Securities
On the political level, so far President Donald Trump and his allies in the newly minted Department of Government Efficiency have been directing their energies toward shaking up federal agencies rather than regulated private organizations like FINRA. But a widely circulated list of conservative priorities known as Project 2025
Despite those attacks on multiple fronts, chances are slim that the agency will be dissolved, the authors of Eversheds Sutherland's latest report on FINRA enforcement said. In the report Adam Pollet, a partner at the firm, deems it "highly unlikely"that FINRA will be abolished in the next four years, "even if litigants or politicians are successful in curtailing certain practices or having the SEC more closely supervise FINRA."
His fellow author and partner at the firm, Brian Rubin, said in a phone interview that the federal government is ill-equipped to step in and oversee the brokerage industry should FINRA's powers be eliminated or severely curtailed.
"The SEC certainly does not have the resources to replace FINRA if, at some level, Congress or the courts do diminish its authority," Rubin said.
Brokers seeing their day in court
FINRA is technically a private organization deputized by the SEC to regulate the brokerage industry. Critics have questioned this setup, asking how a private group could be entrusted with quasi-police powers and yet not come under the direct control of the federal executive branch.
One of the latest of the challenges to FINRA was filed earlier this month in federal court for the District of Columbia by the executive managing director and managing partner of Old Slip Capital Management in New York. James Lukezic's suit says he became the subject of FINRA disciplinary proceedings on Dec. 17, the same day the industry watchdog posted a lengthy regulatory disclosure on
The disclosure states Lukezic,
His suit, which seeks to have a temporary restraining order placed on FINRA's enforcement action, relies heavily on a recent U.S. Supreme Court case curtailing the SEC's own disciplinary powers. In SEC v. Jarkesy, a 6-3 majority on the court
Should FINRA have to use the judicial system?
Lukezic's case specifically cites the Jarkesy precedent in arguing that FINRA's own in-house proceedings are denying him his day in court. His lawyer, Dochtor Kennedy of
Kennedy said FINRA's current in-house proceedings allow for too many conflicts of interest. Many times, he said, the hearing officers who oversee the panels that hand down penalties are also making judgments about what sorts of evidence is admissible — functions that are separated in courts, he said.
The abuses that this can enable become evident in a case like Lukezic's, according to Kennedy. Kennedy said all of Lukezic's alleged victims were made whole when the trades in their accounts were reversed and that Lukezic wasn't accused of making a "dime" from his supposed misdeeds.
Kennedy said he thinks his client won't receive a fair hearing unless he can argue his case in court. The regular judicial system, Kennedy said, offers the "only way you can possibly regulate in a manner that respects people's constitutional rights. It's not OK to have all that leverage and no accountability and go around destroying people's careers."
The 'X' factor at the SEC
But many people say it's far too early to know exactly what will happen to FINRA in the next four years. For one, Trump's choice for taking over the SEC, former chairman
Tiffany Magri, senior regulatory compliance advisor at the compliance consultant SMARSH, said some curtailment of FINRA's powers certainly isn't out of the question. But it's impossible to say what that might look like.
"I don't think they are going to be abolished," Magri said. "At the end of the day, they play a very important function in the financial services industry."
A spokesperson for the agency said, "FINRA fosters vibrant markets with an integrated regulatory program that promotes member firm compliance, targets key risks for investors and markets, and leverages technology and data."
Staying busy amid all the scrutiny
Eversheds Sutherland's enforcement report suggested the additional scrutiny didn't keep FINRA from being active last year. While the total fine amount may have shown a dropoff in 2024, that was mainly because FINRA had logged an unusually large penalty amount the year before.
FINRA hit Bank of America with a
Meanwhile, the amount of FINRA-ordered restitution — money that firms have to pay as compensation to victims — rose by a whopping 207% to $23 million last year. Although investor advocates have pointed out that cheated customers often struggle
"Obviously they are very concerned about retail clients, and they are trying to seek some remediation for those clients," Magri said.
Rubin said it's possible that FINRA's increase in enforcement actions last year came in response to political criticisms that it was doing too little to protect investors. The question for 2025 is how the hand-off approach to regulation advocated by the Trump administration will eventually trickle down.
"It'll be interesting this year because we anticipate the SEC will be bringing fewer enforcement actions," Rubin said. "We'll see if that impacts FINRA."
