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Regulation and Compliance > Federal Regulation > FINRA

FINRA Presses Ahead With Bad-Broker Crackdown

By Melanie Waddell

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The Financial Industry Regulatory Authority is pressing ahead with its crackdown on brokers with a pattern of misconduct and the broker-dealers that hire them.

The broker-dealer regulator has filed with the Securities and Exchange Commission for approval of a multi-pronged plan to clamp down on “the risk of potential customer harm that may persist where a firm or broker has a significant history of past misconduct.”

A separate Regulatory Notice 19-17, which addressed firms with a significant history of misconduct, was approved for filing with the SEC at FINRA’s December board meeting.

FINRA’s plan would allow a hearing officer to impose conditions or restrictions on the activities of a respondent member firm or respondent broker, and require a respondent broker’s member firm to adopt heightened supervisory procedures for such broker, when a disciplinary matter is appealed to the National Adjudicatory Council or called for NAC review.

FINRA Rule 9520 Series (Eligibility Proceedings) would also be amended to require member firms to adopt heightened supervisory procedures for statutorily disqualified brokers during the period a statutory disqualification eligibility request is under review by FINRA.

FINRA’s BrokerCheck Disclosure Rule 8312 would be amended to allow the disclosure through FINRA BrokerCheck of the status of a member firm as a “taping firm” under FINRA Rule 3170 (Tape Recording of Registered Persons by Certain Firms).

As a FINRA spokesperson explained, the taping rule involves recording conversations of registered persons at firms with a specified percentage of registered persons with a history of disciplinary actions. As it stands now, only seven firms out of more than 3,600 broker-dealers would qualify.

Also, the FINRA Rule 1000 Series (Member Application and Associated Person Registration) would require a member firm to submit a written request to FINRA’s Department of Member Regulation, through the Membership Application Group, seeking a materiality consultation and approval of a continuing membership application, if required, when a person that has, in the prior five years, one or more “final criminal matters” or two or more “specified risk events” seeks to become an owner, control person, principal or registered person of the member firm.

— Check out FINRA Bad Broker Rule Would Hit Less Than 2% of Firms on ThinkAdvisor.

Melanie Waddell

@Think_MelanieW

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