Why Brokers Must Testify — Or Else
Failing to cooperate with an inquiry is the most common reason brokers get barred, according to a FINRA enforcement exec.
The most common offense that gets brokers barred from the financial industry isn’t fraud, excessive trading or making unsuitable recommendations. It’s failing to testify or provide information to the Financial Industry Regulatory Authority when requested.
Rule 8210 requires FINRA-registered reps to do so, and the penalties for noncompliance can be steep.
FINRA has barred more than 730 brokers in the last two years, and more than a third of those cases involved Rule 8210 violations, Jessica Hopper, FINRA Enforcement executive vice president, said Monday in a blog post.
Because FINRA is not a government entity, it does not have the ability to subpoena information, she pointed out, adding: “What we do have is FINRA Rule 8210 — a crucial tool that FINRA relies on to protect investors and the market by requiring individuals under FINRA’s jurisdiction to provide information when requested.”
Although barring a rep for violating Rule 8210 — “a seemingly administrative rule — may seem severe,” she explained that, “in reality, the underlying wrongdoing that led to the Rule 8210 request is often quite serious; in many cases, there are suspicions of fraud, conversion of customer funds or other egregious misconduct.”
And that is “typically the untold story behind the story in disciplinary actions citing Rule 8210 violations, as it is rare to find specifics about the underlying misconduct that led to the 8210 request in the case documentation,” she said, adding: “That is because, often, the respondent refuses to cooperate in an investigation at its earliest stage.”
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