FINRA’s Stepped-Up Broker Background Checks to Start in July
Beginning July 9, FINRA will conduct a public records search within 15 days of an applicant's Form U4 filing.
The Financial Industry Regulatory Authority’s new public records disclosure review process, which kicks in on July 9, will ease broker-dealers’ and reps’ public records search burden, at least somewhat, the Cosgrove Law Group noted in a Wednesday blog post.
The law firm noted FINRA’s plans to conduct a public records search within 15 calendar days from the date of an applicant’s Form U4 (Uniform Application for Securities Industry Registration or Transfer) and provide broker-dealers any information resulting from such a search if such information is different from what was the applicant reported.
The additional records search — which Cosgrove notes will satisfy the requirement to perform a search of records for judgments, bankruptcies and liens — was billed by FINRA’s May 18 Information Notice as providing added benefit to member firms and registered persons.
FINRA stated in the notice that the change is likely to: “(1) reduce the costs to firms associated with conducting these public records checks, which often involve finding and hiring a vendor; (2) result in more timely reporting of disclosure information to the benefit of regulators, investors and firms; and (3) result in a significant reduction of late disclosure fees related to judgments and liens.”
Cosgrove notes that while the first and second benefits “seem like probable benefits to both the member firms and the registered persons,” benefit No. 3 “appears to be a stretch.”
The burden “of these public records searches is real, especially to smaller broker-dealers,” the law firm states.
While FINRA taking over these search requirements “is a welcome change,” Cosgrove states, “firms and agents will still need to respond to and file any items that are found in these searches, but the searches themselves will no longer have to be performed in-house or by a third-party vendor for each registered hire.”
Also, firms and registered persons “are still required to report unsatisfied liens and judgments within 30 calendar days of learning of the event as long as the agent is registered and to report other activity, such as certain criminal matters per FINRA rules,” the law firm warns.
— Related on ThinkAdvisor: