FINRA's Richard "Rick" Ketchum, 60, talked with NYT Dealbook about the SRO's expansion plans, its numerous critics, executive compensation, new Enforcement Chief Brad Benett, and its relationship with the firms it regulates.  Most critically, Mr. Ketchum is vying to regulate the tens of thousand of investment advisers who currently report to the SEC, while continuing to regulate over 600,000 brokers.  He also is overhauling FINRA's Enforcement Division, in response to criticisms that it failed to prevent the financial crisis. 

At the time NASD and NYSE Regulation merged in 2007, to form FINRA, Mr. Ketchum was CEO of NYSE Regulation and a main architect of the deal.  He was named chairman of the newly formed Finra Board of Governors and became CEO in 2009, replacing Mary Schapiro, who left to chair the SEC.  Mr. Ketchum, a lawyer by trade and a professed “market geek,” spent more than a decade at NASD and the Nasdaq Stock Market, and he headed the SEC's Market Regulation Division.  He also served for 9 months as general counsel of Citigroup’s corporate and investment bank. 

Rick Ketchum is married and the father of 3.  He's also a Red Sox fan.  

NYT Dealbook's Interview, which can also be read at:  [Dealbook, 4/26/11]

Q.   Congress is considering whether to shift oversight of investment advisers from the S.E.C. to Finra. What’s wrong with the current system?

A.   We can’t continue to have an environment where less than 10% of investment advisers are examined each year. For some relatively smaller ones, it’s more than 10 years. That’s not an acceptable investor protection environment.

Q.   Is Finra ready for the extra responsibilities?

A.   This is a very doable thing, though doing it right takes additional expertise. We would have to grow by over a hundred people — possibly multiples of that. Within six to 12 months, we could begin a program.  We’re already examining broker dealers and 88 percent of investment advisers are also registered representatives of a broker dealer.

Q.   Some investment advisers don’t think Finra is up to the task.

A.   I think they’re wrong. The independent investment adviser understandably looks at this as a fear of the unknown. Some of that is a preference for not being examined on a regular basis — and that’s only human.

Q.   Some of your harshest critics contend that Finra should not be trusted with additional responsibility, given that it filed so few disciplinary actions in the lead up to the credit crisis.

A.   I have to say mea culpa. I don’t think there is any regulator that’s happy about the job they did before the crisis.

Q.   Finra is financed by fees from the financial industry and several industry insiders sit on your board. Was the organization too close to the players it regulates?

A.   No. The problem was, we did not have enough resources dedicated to identifying fraud and dealing with it quickly. That’s why we created the office of the whistle-blower and Office of Fraud Detection and Market Intelligence.  Rather than basing an examination schedule merely on the calendar, we have started to focus our examination of firms on issues that pose real risk to investors. We have already seen significant improvement in quickly dealing with problems as a result.

Q.   You also hired a new enforcement director, Brad Bennett, who until recently defended financial firms and corporate bosses from insider trading and accounting fraud charges. What should Wall Street expect from his group?

A.   Brad has brought a renewed passion. I think it’s tangibly boosted morale in the division.   You’re going to see a lot of cases coming out. I think you’ll see cases brought more quickly and cases that really matter. You’re going to see an accelerated effort to address many of the failures in the credit crisis.  We want to be in there stopping the activity, not just cleaning up the bodies. We’ve changed the organization to be able to respond more quickly. I think we’re more agile now than we were three years ago.

Q.   You earned roughly $2 million in 2009 as the regulator’s chief executive and chairman. Are executive salaries at Finra excessive?

A.   No. Finra strives to have a compensation structure that is competitive with the comparable segment of the market. We have engaged an outside consultant, Mercer, that benchmarks salaries at Finra to make sure they are competitive with that market, but not excessive.

Q.   You spend most of your life in New York or Washington, but you’ve got a picture of the Boston Red Sox hanging in your office. How did that happen?

A.   I grew up in New York but was brainwashed by two New England parents.