What You Need to Know
- The FAQ addresses Rule 4111 (Restricted Firm Obligations).
- Rule 4111 became effective on Jan. 1 and sets extra requirements for BDs with a significant history of misconduct.
- BDs that meet the preliminary criteria will not necessarily be deemed restricted, FINRA says.
The Financial Industry Regulatory Authority has released frequently asked questions guidance on Rule 4111 (Restricted Firm Obligations), which sets extra requirements for broker-dealers with a significant history of misconduct, including firms with a high concentration of high-risk brokers.
Restricted firms may be required to deposit cash into a segregated account to cover potential future regulatory fines.
FINRA said in early February that on June 1, it will start the process to determine which of the 3,400 broker-dealer firms under its purview meet the “preliminary criteria” to be categorized as a restricted firm under new Rule 4111.
Rule 4111 became effective on Jan. 1.
FINRA said that it expects that the first “early indicator calculations” of which firms qualify as restricted, as described in Regulatory Notice 21-34, will be available to member firms in early June.