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FINRA to Take Over Review of Public Records for Broker Hires

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Starting this Monday, July 9, broker-dealers will no longer have to search public records to verify information provided by candidates for brokerage or investment advisor jobs. The Financial Industry Regulatory Authority will assume that responsibility.

The self-regulatory organization for the industry will review Form U4 filed by job candidates and transfers to check for disclosure about past bankruptcies, liens, judgments, criminal activity and civil litigation. If a member firm doesn’t hear back from FINRA within 15 days of the Form U4 filing, it can assume the firm has satisfied its obligation to conduct a public records search for new hires and transfers.

But if the FINRA review indicates that information is missing or contains discrepancies, the firm will receive a notice to that effect and must investigate. If the information it finds is reportable,  the firm then can submit an amended Form U4 within 30 days of the notice and avoid late fee charges.

(Related:  FINRA’s Stepped-Up Broker Background Checks to Start in July)

Currently many firms hire vendors to check public records. FINRA has estimated that firms will save a combined $1.5 million to $3 million per year by avoiding search fees charged by vendors and fees assessed by FINRA for late filings.

“Small firms, in particular, should see meaningful cost savings and reduced regulatory burden through this enhancement,” said Derek Linden, FINRA executive vice president, Registration and Disclosure, in a statement. FINRA initially announced the enhancement in May.

The information on Form U4 is funneled into a central registration depository, CRD, which serves as the database for the registrations of firms and individuals in the brokerage industry. FINRA and federal and state regulators use the information for licensing and other purposes and it is also made available to investors through BrokerCheck.

“The timeliness of FINRA’s review will also help assure investors that the BrokerCheck information about their representative is as accurate, complete and up-to-date as possible,” said Linden. The new review is part of the FINRA360 initiative to improve data quality for regulators and investors and reduce compliance risks and costs for brokerage firms.

It also augments FINRA’s current annual check of public financial records on all registered persons  to verify the accuracy and completeness of information reported on Form U4.

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