Ethics Center: Sales & Marketing

Advisor Alert: FINRA to Tighten the Screws on High-Risk Brokers

In financial services, not only does crime generally not pay, but being a serial regulatory offender often results in tougher regulatory scrutiny. That’s according to a press release from the Financial Industry Regulatory Authority (FINRA) Board of Governors.

According to FINRA, the self regulatory organization is planning to issue a Regulatory Notice seeking input on several new measures, including stronger investor protections, added BrokerCheck disclosures, and stricter handling of brokers appealing FINRA disciplinary action.

“These actions will build on FINRA’s extensive existing programs to address high-risk brokers and reflect our commitment to protect investors and promote public confidence,” said Robert W. Cook, FINRA President and Chief Executive Officer.”

Here are some of the measures in FINRA’s regulatory pipeline:

  • Enable FINRA to consider more severe sanctions when brokers perform additional types of misconduct.
  • Allow FINRA hearing panels to restrict activities of brokers and firms while sanctions are on appeal.
  • Mandate heightened supervisory procedures for brokers while FINRA considers a statutory disqualification request.
  • Allow FINRA to impose a mandatory BrokerCheck disclosure for firms that are recording all broker customer phone conversation because they employ an excess number of brokers with prior sanctions.
  • Add a factor to FINRA exam requirement waivers based on prior arbitration awards and settlements.

In short, FINRA is sending a message that serial offenders will soon face a more hostile regulatory environment. Given the alternative of reforming their behavior or dealing with more FINRA scrutiny, we can only hope that problem brokers will make the wise choice.

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