FINRA plans to seek comment on rule amendments relating to brokers with a history of misconduct as well amendments to allow the self-regulator to deny a new membership application if the applicant is subject to pending arbitration claims.
FINRA, as the Financial Industry Regulatory Authority is known, also recently asked the Securities and Exchange Commission to allow FINRA to expand its pool of “non-arbitrators.”
The requests for comment on brokers with a history of misconduct, approved by FINRA’s Board at the broker-dealer regulator’s July 18 meeting, will be issued in forthcoming regulatory notices.
(Related: FINRA Earnings Rise as Fines Soar)
The first action would seek amendments to FINRA’s Membership Application Program rules and require a member firm to seek a “materiality consultation” with FINRA if the member is not otherwise required to file a continuing membership application and: (1) a broker with certain specified risk events seeks to become an owner, control person or principal of the member; or (2) the member seeks to add a broker with certain specified risk events to the firm.
The proposal would state that for business expansions, such a person would not be available for any member under these circumstances.
FINRA staff, the SRO said, “would review the submission and determine whether the member is required to file a continuing membership application in accordance with Rule 1017.”
Robert Cook, FINRA’s CEO, said on June 12 that FINRA planned to release in the coming months additional guidance regarding broker-dealers’ supervisory obligations related to brokers that may “pose higher risk.”
“Our intention is to provide firms with a better understanding of what our expectations are on how they should go about identifying brokers who may merit heightened supervision and about what the elements of heightened supervision might be,” Cook said during remarks at Georgetown University’s McDonough School of Business Center for Financial Markets and Policy.
The proposed amendments regarding pending arbitration would also require a member firm to seek “a materiality consultation” with FINRA if the broker-dealer is “not otherwise required to file a continuing membership application and the member is seeking to effect a business expansion or asset transfer and the member or an associated person has a substantial level of pending arbitration claims, an unpaid arbitration award or an unpaid settlement related to an arbitration.”
This proposal would also provide that “business expansions” would not be available for any member under these circumstances.
FINRA would also review the submission and determine whether the member is required to file a continuing membership application in accordance with Rule 1017.
The self-regulator also recently filed with the SEC a plan to allow FINRA to appoint individuals to the non-public arbitrator roster if they meet FINRA’s general arbitrator qualification criteria, but cannot be classified as public arbitrators.
“Hundreds of arbitrators or arbitrator applicants who formerly qualified to serve as public arbitrators are now unable to serve as arbitrators in the forum,” FINRA said. “As a result, the pool of eligible arbitrators has decreased, and FINRA is forced to turn away new candidates who would have been eligible to serve but for the recent amendments. The proposed rule change would permit these previously eligible persons to serve as non-public arbitrators.”
While not changing the public arbitrator definition as approved by the SEC in 2015, FINRA states, “the proposed rule change would expand the pool of candidates eligible to serve as non-public arbitrators.”
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