The Financial Industry Regulatory Authority issued guidance Monday on when heightened broker-dealer supervision of an “associated person” may be warranted. FINRA also is seeking comments on proposed rule amendments that would impose extra restrictions on member firms that employ brokers with a history of “significant” past misconduct.
FINRA’s Regulatory Notice 18-15 reminds broker-dealers of their supervisory obligations when hiring registered reps with a history of past misconduct, and states that FINRA Rule 3110 (Supervision) requires member firms to establish and maintain a system to supervise the activities of each associated person “that is reasonably designed to achieve compliance with applicable securities laws and FINRA rules.”
Comments are due by June 29 on Regulatory Notice 18-16, which seeks to impose further restrictions on member firms that employ high-risk brokers.
Member BD firms, FINRA states in Notice 18-15, “have a fundamental obligation to implement a supervisory system that is tailored specifically to the member firm’s business and addresses the activities of all its associated persons.”
The broker-dealer self-regulator encouraged BDs to adopt practices outlined in the Notice “to strengthen their own supervisory procedures, as appropriate to their business,” adding that the Notice is one of several FINRA initiatives focused on associated persons with a history of past misconduct that pose a risk to investors and the firms that employ them.
FINRA states that effective heightened supervision plan should include, at a minimum:
- Designating a principal with the appropriate training and experience to implement and enforce the plan;
- Requiring appropriate additional training for the associated person subject to the plan to address the nature of incidents resulting in the plan;
- Requiring the written acknowledgment of the heightened supervisory plan by the associated person subject to the plan and the designated supervisory principal; and
- Periodically reviewing the heightened supervision plan to assess its effectiveness.