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FINRA to Clamp Down on High-Risk Brokers With Tougher Rules

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The Financial Industry Regulatory Authority board has approved the next step in FINRA’s efforts to tighten the screws on high-risk brokers and reduce recidivism.

The proposals, released Thursday, aim to require firms to adopt heightened supervisory measures for brokers while a disqualification request is under review and when advisors are appealing a hearing panel decision. Plus, they would increase FINRA’s disqualification application fee for individuals and impose a new fee on firms to reflect the extra time it takes the regulatory group’s staff to screen these applications.

One proposal would expand sanction guidelines so adjudicators could apply more severe sanctions when an advisor’s disciplinary history includes additional types of past misconduct. Hearing panels also might be given the ability to restrict certain activities of firms and individuals while a disciplinary matter is on appeal.

“These actions will build on FINRA’s extensive existing programs to address high-risk brokers and reflect our commitment to protect investors and promote public confidence in securities firms and markets. We are continuing to develop additional proposals in this area that will be brought to the Board in the coming months,” said FINRA President and CEO Robert W. Cook, in a statement.

The group plans to issue a Regulatory Notice soon that would seek comment on its key proposals, including additional disclosures on the BrokerCheck website to heightened supervision of brokers appealing disciplinary matters.

These proposals and related actions “are designed to enhance FINRA’s existing high-risk broker programs,” the group says. “Built on extensive data and analyses, these programs are specifically designed to identify and address high-risk brokers, including through disciplinary actions, enhanced examinations, and ongoing surveillance.”

FINRA says it will issue a Regulatory Notice that reinforces and clarifies firms’ existing supervisory obligations with respect to “any high-risk brokers they may employ.”

In addition, the proposals also include a mandatory disclosure on BrokerCheck “if a firm is subject to existing requirements for recording all telephone conversations with customers due to having a specified percentage of registered representatives who were formerly employed by disciplined firms,” it says.

Finally, the proposals would revise guidelines for reviewing requests for waivers from FINRA exam requirements to “more broadly consider the past misconduct of an individual, including arbitration awards and settlements.”

— Check out Are Brokers Greedy Scumbags? on ThinkAdvisor.


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