The Financial Industry Regulatory Authority (FINRA) has proposed transferring majority representation on its governing board from independent public representatives to brokerage industry members, reversing a governance arrangement established nearly three decades ago following a major regulatory scandal.
The proposal, filed with the Securities and Exchange Commission (SEC) on November 2 and published on November 10, 2026, would reduce FINRA’s maximum board size from 25 to 20 members and require industry representatives to outnumber public governors.
Under the proposed structure, public representatives would account for between 41.7% and 47.4% of governors classified as either industry or public members. FINRA’s chief executive would retain a separate seat outside both categories.
The changes would also extend board members’ maximum consecutive service from six to nine years, restructure appointed industry seats and give the board greater flexibility over its committees.
FINRA argues that the overhaul would improve participation by the firms it regulates while preserving safeguards for investors. Yet the proposal would reverse a central feature of its existing oversight structure, adopted after the SEC found that securities industry interests had exercised undue influence over its predecessor.
Industry representatives would gain majority control
FINRA currently operates under bylaws requiring public governors to outnumber industry governors. Its board can have up to 25 members, including 10 designated industry seats, between 11 and 14 public seats, and the chief executive.
The proposal would establish a board of 13 to 20 members, with seven to 10 industry governors, five to nine public governors, and the CEO.
At the proposed maximum size, the board would contain 10 industry representatives, nine public representatives and the CEO. Industry members would therefore hold a majority among the 19 governors classified as industry or public, although not an absolute majority of all 20 seats.
The seven existing elected industry positions would remain unchanged: three representing small brokerage firms, one representing mid-sized firms and three representing large firms.
The three other industry positions currently reserved for specific business segments would be converted into as many as three appointed at-large seats.
Those positions currently represent floor members, independent dealers and insurance affiliates, and investment company affiliates. Under the proposal, FINRA could appoint qualified representatives from a broader range of member firms instead of reserving the positions for those categories.
The seven elected seats stay, but the other three, those would work differently.
FINRA could also leave some at-large positions vacant to operate with a smaller board. The number of public governors would be adjusted to maintain the required industry majority.
Under the proposed minimum configuration, seven industry governors would sit alongside five public governors and the CEO. Public representatives would therefore hold five of the 12 industry and public seats, or 41.7%.
FINRA said the greater flexibility would help it incorporate expertise from different business models, including smaller firms that might otherwise have limited opportunities to participate in governance.
A reversal of safeguards introduced after the Nasdaq scandal
The proposal carries historical significance because FINRA’s majority-public governance structure originated in regulatory action against its predecessor, the National Association of Securities Dealers (NASD).
In 1996, the SEC concluded that NASD had failed to adequately oversee the Nasdaq market and that Nasdaq market makers had exercised undue influence over its operations and regulatory affairs.
The enforcement action imposed 14 undertakings, including a requirement for at least 50% independent public and non-industry representation on the NASD board and specified related bodies.
The NASD had already amended its bylaws earlier that year to require non-industry governors to outnumber industry representatives. That majority-public arrangement was retained in 2007 when NASD consolidated with NYSE Regulation to form FINRA.
Nearly 30 years later, FINRA is seeking to reverse the composition requirement that emerged from that episode.
The old Nasdaq case is still part of the legal story here, rather awkwardly for a modernization proposal.
FINRA acknowledges that the 1996 enforcement order remains relevant. Its SEC filing, Release No. 34-106868, states that the organization is separately requesting relief from the undertaking governing board and committee composition.
That means the proposed bylaw amendments are not the only regulatory consideration. Relief from the earlier SEC enforcement undertaking must also be addressed before FINRA can implement a conflicting governance structure.
FINRA’s justification rests partly on changes to its business and regulatory environment since the 1990s.
The organization notes that NASD fully divested its ownership of Nasdaq in 2006, eliminating the market-related conflicts that had been central to the original enforcement action.
FINRA also points to the subsequent development of internal audit, disciplinary review and oversight arrangements that it believes can protect regulatory independence without requiring public representatives to control the board.
Its argument is that industry expertise can be given greater weight without reproducing the conflicts identified in 1996.
Audit oversight would remain independent
One safeguard would survive the restructuring: FINRA’s Audit and Risk Committee would continue to require a public-governor majority and a public-governor chair.
The committee oversees internal audit functions, external auditors, compliance matters and enterprise risks. FINRA’s Office of the Ombuds also reports directly to it.
FINRA says its independent Office of Hearing Officers, which conducts disciplinary proceedings, and Office of Disciplinary Affairs, which reviews proposed enforcement complaints and settlements, would retain their existing protections.
The seperation between these functions and FINRA’s enforcement investigators would therefore remain formally unchanged.
Other board committees would operate under revised composition requirements. Each would generally need at least two public governors and two industry governors, but could have an industry majority, a public majority or equal representation.
For committees with seven or fewer members, the minimum number of public governors would be one fewer than the number of industry governors. For committees with eight or more, the minimum would be two fewer.
And the audit committee would be the exception, not the model for the rest.
The board would gain greater discretion over committee size, leadership and the duration of appointments. Existing one-year committee terms would be replaced with terms determined by the board.
The proposed quorum rules would require at least half of both the public and industry members, alongside an overall majority, to conduct board or committee business.
Those attendance requirements would prevent either category from forming a quorum without sufficient participation by the other, although they would not establish equal voting power.
FINRA also proposes extending the maximum service of governors from two consecutive three-year terms to three. This would allow directors to remain in office for up to nine consecutive years.
Longer terms could preserve institutional knowledge, as FINRA argues, but would also allow individual governors to retain influence for an additonal three years before reaching their term limit.
What the governance changes could mean for brokers
The proposal does not directly amend broker-dealer capital requirements, customer protection rules, best-execution obligations or disciplinary standards.
Its immediate effect, if approved, would concern who oversees FINRA’s management, sets organizational priorities and participates in governing the country’s principal broker-dealer self-regulatory organization.
That mandate covers a changing securities industry in which traditional brokerage functions are increasingly embedded in technology and cryptocurrency platforms.
For example, the brokerage infrastructure supporting Binance’s U.S. stock products relies on Alpaca Securities, a FINRA member, for regulated trading and custody functions.
The regulatory issues involved extend beyond conventional stockbroker supervision. Order-routing compensation, conflicts of interest and execution practices remain relevant as new distribution models emerge.
DaveFinances previously examined payment-for-order-flow arrangements in Binance’s ETF offering, including the role of its underlying U.S. brokerage provider.
FINRA’s board does not adjudicate individual trading orders or directly replace the independent disciplinary offices. Nevertheless, its composition influences the leadership and institutional priorities surrounding those regulatory activities.
For brokerage firms, the question is about representation, yes, but also about how that representation works over time.
FINRA’s own economic analysis acknowledges that industry and public governors may bring different incentives, backgrounds and perspectives to the organization.
Industry representatives typically possess more detailed knowledge of brokerage operations, while public governors can contribute perspectives extending beyond the interests of regulated firms.
FINRA argues that increased industry participation would improve its ability to respond to emerging products and business models. Those developments already include AI-driven investment services and broker supervision, where existing securities regulations continue to apply despite changes in technology.
The concern about regulatory capture arises from the proposed allocation of governance authority, rather than evidence that any existing FINRA official has compromised an investigation or enforcement decision.
The SEC retains oversight of FINRA’s rules and regulatory activities. The Government Accountability Office also reviews the SEC’s oversight of FINRA, including governance transparency and conflicts-of-interest management.
Those external controls would remain in place if the proposed changes were approved.
The filing is now open for public comment. The SEC notice states that interested parties may submit comments within 21 days after publication in the Federal Register.
The Commission generally has 45 days after Federal Register publication to approve, disapprove or institute further proceedings on the proposal, subject to permitted extensions.
For now, FINRA’s existing public-majority governance rules remain in force. The SEC must evaluate the proposed amendments, while FINRA must also resolve the seperate issue of relief from the 1996 enforcement undertaking.
The outcome will determine whether public representatives retain their longstanding board majority or whether brokerage industry governors gain the larger formal role that FINRA is seeking.
Johan Shamshad is Editor-in-Chief at Dave Finances, covering financial markets, digital assets, trading platforms, brokers, fintech, payments and regulation. Since 2023, he has also worked as an editor at Gulf News, the UAE English-language newspaper published by Al Nisr Publishing LLC. His work focuses on market-moving developments, company disclosures, regulatory changes and trading infrastructure, with an emphasis on primary-source verification and practical context for traders and investors.