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FINRA Pushes Ahead With More Bad-Broker Rules

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The Financial Industry Regulatory Authority is moving ahead with more rules to rein in brokers with a history of misconduct.

FINRA has sent to the Securities and Exchange Commission for approval two separate rule proposals.

One would adopt Rule 4111, which would impose obligations on broker-dealers that have “significantly higher levels of risk-related disclosures than similarly sized peers.”

FINRA would preliminarily identify these broker-dealers “by using numeric, threshold-based criteria and several additional steps that would guard against misidentification.”

The proposed rule “would create a multi-step process for FINRA’s determination of whether a member firm raises investor-protection concerns substantial enough to require that it be subject to additional obligations.”

The obligations, according to FINRA, could include requiring a member firm to maintain a specific deposit amount, with cash or qualified securities, in a segregated account at a bank or clearing firm, from which the member firm could make withdrawals only with FINRA’s approval.

The obligations also include “conditions or restrictions on the operations and activities of the member firm and its associated persons that relate to, and are designed to address the concerns indicated by, the preliminary identification criteria and protect investors and the public interest,” FINRA said.

FINRA also plans to adopt FINRA Rule 9561, and amend FINRA Rule 9559, to create a new expedited proceeding to implement proposed Rule 4111.

FINRA is also proposes to adopt Capital Acquisition Broker Rule 412 (Restricted Firm Obligations), to clarify that member firms that have elected to be treated as CABs would be subject to proposed FINRA Rule 4111, and to amend Funding Portal Rule 900(a) (Application of FINRA Rule 9000 Series to Funding Portals), to clarify that funding portals would not be subject to proposed FINRA Rule 9561.

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