What You Need to Know
- New rules and amendments become effective on Jan. 1, 2022.
- Restricted firms could be required to deposit cash or securities in a segregated account.
- Firms have a chance to challenge the restricted label or lay off high-risk brokers before being subject to the new requirements.
The Financial Industry Regulatory Authority said Wednesday that it has adopted new rules to crack down on risks posed by broker-dealers with a significant history of misconduct, including firms with a high concentration of individuals with a similar history.
FINRA’s plan, approved by the Securities and Exchange Commission in late July, adopts Rule 4111, Restricted Firm Obligations, which uses criteria to decide whether to designate BDs as “restricted firms.”
The new rules and amendments become effective on Jan. 1, 2022.
Rule 4111 allows FINRA to impose new obligations on broker-dealers with significantly higher levels of risk-related disclosures than other similarly sized peers, based on numeric, threshold-based criteria, FINRA explained in Regulatory Notice 21-34.
Also adopted is new Rule 9561 (Procedures for Regulating Activities Under Rule 4111) and amendments to Rule 9559 (Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series), which establishes a new expedited proceeding to implement Rule 4111.
Under Rule 4111, “the obligations that can be imposed include a requirement to deposit cash or qualified securities in a segregated, restricted account, and other conditions and restrictions that are necessary or appropriate for the protection of investors and in the public interest,” FINRA explained.