Self-Regulation does not always work

The Financial Industry Regulatory Authority (FINRA) is a classic example. It is a self-regulatory body financed by Wall Street that oversees brokerage firms and has a division that runs a private justice system known as mandatory arbitration that hears all claims against bad brokers. It used to be known as the National Association of Securities Dealers (NASD) but its reputation became so damaged as a self-regulator that it changed its name to FINRA. 

It handles mandatory arbitration in a strange way. Since 2013, it has yet to pay $60 million to investors who won in their arbitration hearing. It also seems to want to protect brokers who have been disciplined or have lost arbitration cases. Some brokers are not listed in FINRA's BrokerCheck, where investors can check to see if their stockbroker has a disciplinary history. According to the Public Investors Arbitration Bar Association, a trade group for lawyers representing investors, “Brokers succeeded 96.9 percent of the time between mid-2009 and the end of 2011 in expunging details about cases brought by investors against their firms that were later settled.”