FINRA Rule Change will Protect Investors from High Risk Firms, Broker Misconduct
According to The Securities and Exchange Commission on Friday, the regulator has approved a FINRA rule change to protect investors from brokers with a long record of misconduct.
FINRA Rule 4111 (Restricted Firm Obligations) was created to crack down on broker-dealers with “a significant history of misconduct” and those firms employing a large number of registered representatives with long disciplinary records.
FINRA has reportedly identified certain firms that consistently hire such individuals and then fail to reasonably supervise their activities, according to the order. According to Thinkadvisor citing one source, “These advisors are typically serial offenders with long rap sheets.”
The proposal will require broker dealers with significant disclosures to “deposit cash or qualified securities in a segregated account, adhere to specified conditions or restrictions, or comply with a combination of such obligations,” according to the SEC’s order.
FINRA is also reportedly proposing the adoption of FINRA Rule 9561 (Procedures for Regulating Activities) and amending FINRA Rule 9559 (Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series) to create a new expedited proceeding to implement proposed Rule 4111, according to the SEC.
According to the SEC, FINRA further found that those firms generally had a retail business engaging in cold calling investors, often vulnerable ones, to make recommendations of securities.
SEC Commissioners on Friday also gave approval for FINRA to share information about high-risk broker dealers with state regulators and also plans to disclose the identities of high risk firms to the public, noting “A firm’s high-risk status is important information and will help investors make informed choices about the firms they select..”
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