The Self-Regulation of Investment Bankers
Andrew F. Tuch
Washington University in Saint Louis - School of Law
September 10, 2014
83 George Washington Law Review 101 (2014)
Washington University in St. Louis Legal Studies Research Paper No. 14-04-04
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 broker-dealers, FINRA functions as the equivalent of the self-regulatory bodies governing other professionals, such as lawyers and accountants. Unlike the self-regulation 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 self-regulation 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.
Number of Pages in PDF File: 76
Keywords: Investment banking, investment bankers, FINRA, self-regulation, professional responsibilities, ethics, enforcement, conflicts of interest, fraud
JEL Classification: K22, G24, G21, G34
Date posted: May 5, 2014 ; Last revised: June 17, 2015