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Regulation and Compliance > Federal Regulation > FINRA

Caution urged in wake of latest FINRA sweeps

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FINRA — the Financial Industry Regulatory Authority — is executing two new industry “sweeps” that suggest high standards of ethics and strict compliance are more important than ever.

The first sweep, announced in Sept. 2007, is to examine whether brokers are using so-called “professional” designations to mislead and defraud investors. FINRA, along with state regulators, are concerned about the growing number of professional designations, particularly those used to suggest special expertise providing financial advice and products to seniors, but that don’t require meaningful knowledge or training.

In the second new sweep, FINRA examiners are looking at early retirement seminars conducted by securities firms designed to entice older workers to liquidate their retirement funds and invest them with a specific firm or representative. In the past year, FINRA has fined two firms a total of $5.5 million and ordered the firms to pay $26 million in restitution related to early retirement investment schemes aimed at Exxon and Bell South employees.

FINRA currently has two other regulatory sweeps going in the senior marketplace — one focusing on the sale of collateralized mortgage obligations and a second focusing on sales of life policies on the secondary market. FINRA recently completed another regulatory sweep, conducted jointly with the SEC and state regulators, into the sales tactics used at “free lunch” seminars.

In light of these heightened regulatory efforts, financial professionals should refocus on the basics of fact-finding, avoiding misleading or high-pressure sales practices, and making suitable recommendations at all times, especially when dealing with senior clients.


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