FINRA Proposes Industry-Majority Board, Reversing 1996 Reform

The Financial Industry Regulatory Authority (FINRA) has proposed giving brokerage industry representatives majority control of its governing board. The move would reverse an independence requirement introduced in 1996, after a Securities and Exchange Commission (SEC) investigation found serious conflicts in its predecessor's oversight of Nasdaq.

The proposal was filed with the SEC on November 2 and published on November 10, 2026. The filing, SR-FINRA-2026-024, would substantially change how the self-regulatory organization is governed. Its responsibility for supervising US broker-dealers and protecting investors would stay the same.

The filing would also cut FINRA's maximum board size from 25 to 20 governors, require industry representatives to outnumber independent public governors, and extend maximum consecutive board service from six to nine years.

Why the 1996 requirement is being reversed

In 1996, the SEC found that the National Association of Securities Dealers (NASD), FINRA's predecessor, had failed to adequately oversee Nasdaq. The agency also found that market makers had exercised undue influence over its regulatory operations. The enforcement action that followed imposed reforms meant to strengthen independence, including requirements on public representation on governing bodies and oversight committees.

NASD later separated its commercial interests from its regulatory responsibilities and completed its divestiture of Nasdaq in 2006. FINRA was established in 2007 through the combination of NASD and New York Stock Exchange (NYSE) Regulation's member regulation operations.

FINRA argues that the conditions behind those original conflicts have changed substantially. It points to the Nasdaq divestiture, independent disciplinary processes, internal auditing and SEC oversight as safeguards against improper influence.

FINRA is also asking the SEC for relief from the relevant undertaking in the 1996 enforcement order, which governs board composition. Approval of the bylaw amendments alone would not resolve that historical obligation.

How the board would change

Under FINRA's existing bylaws, the board can have up to 25 governors: 10 industry representatives, 11 to 14 public governors and the organization's chief executive, who is classified separately.

Under the proposal, the board would have between 13 and 20 members, including seven to 10 industry governors, five to nine public governors and the chief executive. Public governors would make up between 41.7% and 47.4% of governors classified as either industry or public representatives. At the maximum size, the board would include 10 industry governors, nine public governors and the chief executive.

The seven existing elected industry seats would stay allocated among brokerage firms by size: three for small firms, one for mid-sized firms and three for large firms. FINRA would replace three appointed seats now reserved for specific industry segments with up to three at-large industry positions, which would let the board appoint representatives from a wider range of brokerage business models.

The proposal also follows other efforts to modernize broker-dealer regulation, including revisions to FINRA's day-trading margin framework.

Safeguards and the SEC review

FINRA proposes keeping an independent majority on its Audit and Risk Committee, which would continue to be chaired by a public governor. The committee oversees internal auditing and other accountability functions. FINRA's independent hearing officers and disciplinary review mechanisms add further separation between investigations and adjudication.

Other board committees would get more flexibility over membership and leadership, subject to minimum participation requirements for both public and industry governors. FINRA also proposes that meetings require participation from at least half of both public and industry governors, alongside an overall board majority.

The nine-year service limit could improve institutional continuity, but it would also let industry representatives stay in governance positions for longer periods.

FINRA's enforcement cases show why independent supervision matters. Its earlier sanctions against Securities America involved mutual fund supervision failures that affected retail investors. Enforcement against DriveWealth addressed delays in processing customer account transfers.

The proposal still needs SEC review and has not taken effect. The SEC must weigh whether more industry representation is compatible with the independence safeguards set up to prevent conflicts between brokerage firms and the regulator. The SEC's November 10 notice invites public comments on whether the amendments are consistent with federal securities law. FINRA must also obtain the separate relief it has requested from the 1996 undertaking. The filing does not change brokerage compliance requirements or investor protections immediately. The comment period runs for 21 days following publication in the Federal Register.