More On Legal & Compliancefrom The Advisor's Professional Library
- U.S. Securities and Exchange Commission Information This information sheet contains general information about certain provisions of the Investment Advisers Act of 1940 and selected rules under the Advisers Act. It also provides information about the resources available from the SEC to help advisors understand and comply with these laws and rules.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
The Financial Industry Regulatory Authority’s Board on Thursday approved sweeping changes involving brokers’ background checks.
The FINRA Board approved amendments to FINRA's supervision rule that would expand the obligations of firms to check the background of applicants for registration, including first-time applications as well as transfers, to verify the accuracy and completeness of the information contained in an applicant's Form U4.
Firms would also be required to adopt written procedures in this area that include searching public records.
The Form U4 is the Uniform Application for Securities Industry Registration or Transfer used by FINRA, other self-regulatory organizations (SROs) and states to elicit employment background and disciplinary information to register individuals.
FINRA also said that it plans to perform an initial search of public financial records for all registered representatives and will also conduct a search of publicly available criminal records for all registered individuals who have not been fingerprinted within the last five years.
Once these searches are completed, FINRA said that it will conduct “periodic reviews of public records to ascertain the accuracy and completeness of the information available to investors, regulators and firms.”
These efforts, FINRA stated, "also better position FINRA to assess firm and registered individual compliance with reporting requirements."
FINRA is also considering whether additional data from the Central Registration Depository (CRD) system used by regulators should be included in BrokerCheck. FINRA said that its chief economist has initiated a study to see if there is a meaningful relationship between that data – which includes failed examinations – and broker misconduct.
"These are important initiatives to improve the accuracy and totality of details reported on a registered individual’s Form U4,” said Richard Ketchum, FINRA’s chairman and CEO, in a statement. “FINRA would require firms to use publicly available records to verify that information such as criminal and bankruptcy records, civil litigations, judgments and liens are properly reported upon a registered individual's application. FINRA encourages every investor to use BrokerCheck to research the background of individuals they are trusting to invest their money.”
The amendments to the supervision rule will be submitted to the Securities and Exchange Commission for review and approval.
(Related ThinkAdvisor story: FINRA Reverses Schwab Class Action Waiver Decision)