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Regulation and Compliance > Federal Regulation > FINRA

BrokerCheck to Show Problem Firms' 'Restricted' Status

By Melanie Waddell

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As part of its multi-pronged effort to rein in broker-dealers with a significant history of misconduct, including firms with a high concentration of high-risk brokers, the Financial Industry Regulatory Authority’s BrokerCheck will now show that a firm has been designated a restricted firm.

FINRA has adopted amendments to Rule 8312 (FINRA BrokerCheck Disclosure) to release information on BrokerCheck as to whether a particular current or former member firm is designated as a restricted firm under FINRA Rules 4111 (Restricted Firm Obligations) and 9561 (Procedures for Regulating Activities Under Rule 4111), the regulator said in a Regulatory Notice.

Rule 4111 uses criteria to decide whether to designate BDs as “restricted firms.”

The new rule amendments become effective June 1.

Releasing this information on BrokerCheck “will alert investors to research more carefully the background of the firm,” FINRA states. “It also will create additional incentives for firms with a significant history of misconduct to change behaviors and activities to reduce risk.”

Information that a firm is restricted will display on a firm’s summary and detailed BrokerCheck reports, FINRA explains.

Last June, FINRA released a Rule 4111 compliance tool to help broker-dealers determine whether they meet the preliminary criteria to be designated as a restricted firm. These firms face obligations including a requirement to hold money in a restricted account to cover any future arbitration awards.

Melanie Waddell

@Think_MelanieW

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