FINRA Takes Aim at High-Risk Brokers with New Proposals, Controls

The Financial Industry Regulatory Authority (FINRA), the largest independent regulatory authority in the US, has had its board of governors move forward with an initiative to strengthen controls on brokers with suspect histories or patterns of misconduct, helping to foster a greater level of accountability and to police the industry, according to regulatory filing.

FINRA has engaged in an ongoing agenda to more appropriately hold high-risk brokers to account, whilst also shoring up controls for brokers that have not adequately followed rules or regulations outlined by the regulator. The group will be unveiling a new Regulatory Notice with several key proposals, each aimed at strengthening investor protections.

In particular, this includes a focus on disciplinary matters, with an additional disclosure on BrokerCheck for the heightened supervision of brokers, namely those deemed high-risk. This latest push follows past efforts by FINRA to address these concerns, expanding previously sanctioned guidelines.

The initiative is important as it could give FINRA more teeth, enabling adjudicators to consider more stringent sanctions in the case of individuals with a more detailed disciplinary history. Hearings could also be deployed with the aim of restricting the activities of firms and individuals while a disciplinary matter is on appeal.

Regulatory Call

FINRA will also be issuing a Regulatory Notice to help reinforce and clarify firms’ existing supervisory obligations with regard to any high-risk brokers they may employ. Such proposals would specifically require firms to adopt heightened supervisory procedures for brokers while a statutory disqualification request is under FINRA review.

According to Robert W. Cook, FINRA President and CEO, in a statement on the agenda: “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 in securities firms and markets. We are continuing to develop additional proposals in this area that will be brought to the Board in the coming months.”