Professor Andrew F. Tuch
83 GEO. WASH. L. REV. 101
As broker-dealers, investment bankers must register with the Financial
Industry Regulatory Authority (“FINRA”) and comply with its rules, including
the requirement to “observe high standards of commercial honor and just
and equitable principles of trade.” As the self-regulatory body for brokerdealers,
FINRA functions as the equivalent of the self-regulatory bodies governing
other professionals, such as lawyers and accountants. Unlike the selfregulation
of these professionals, however, the self-regulation of investment
bankers has thus far attracted scant scholarly attention.
This Article evaluates the effectiveness of this self-regulatory system in
deterring investment bankers’ misconduct. Based on a hand-collected data set
of every disciplinary matter by FINRA during the period from January 2008
(shortly after FINRA’s formal organization) to June 2013, this Article shows
that FINRA sanctions remarkably few investment bankers. Relying on this
data, the Article argues that the current system of self-regulation underdeters
investment bankers’ misconduct. In addition, the burdens of the existing approach
to self-regulation may well exceed its benefits. Other techniques for
regulating bankers’ conduct, including private and SEC enforcement, are unlikely
to compensate for the weak deterrence force of self-regulation. Yet selfregulation
offers distinct advantages over these other techniques, including the
ability to impose more fine-grained rules. Therefore, although the current approach
to self-regulation is failing, this Article argues that self-regulation must
be retained and improved and considers ways of doing so.
A Response to this Article has been Published in Geo. Wash. L. Rev. Arguendo.