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FINRA Approves Proposals to Strengthen Controls on High-Risk Brokers

Traders Magazine Online News, June 1, 2017

John D'Antona Jr.

In an ongoing mandate to protect investors, the Financial Industry Regulatory Authority (FINRA) Board of Governors approved the next step in FINRA's ongoing initiative to strengthen controls on brokers with a history of significant past misconduct and to ensure greater accountability for firms that choose to employ high-risk brokers.

The current proposals would expand sanction guidelines to enable adjudicators to consider more severe sanctions when an individual's disciplinary history includes additional types of past misconduct. They also would allow hearing panels, in appropriate circumstances, to restrict the activities of firms and individuals while a disciplinary matter is on appeal.

Robert Cook

FINRA will also issue a Regulatory Notice reinforcing and clarifying firms' existing supervisory obligations concerning any high-risk brokers they may employ. The proposals would specifically require firms to adopt heightened supervisory procedures for brokers while a statutory disqualification request is under FINRA's review, or the broker is appealing a hearing panel decision. In addition, they would increase FINRA's statutory disqualification application fee for individuals and enact a new fee for firms to reflect the additional time it takes FINRA staff to thoroughly screen those applications.

The proposals also include a mandatory disclosure on BrokerCheck if a firm is subject to existing requirements for recording all telephone conversations with customers due to having a specified percentage of registered representatives who were formerly employed by disciplined firms.

Finally, the proposals would revise the guidelines for reviewing requests for a waiver from FINRA exam requirements to more broadly consider the past misconduct of an individual, including arbitration awards and settlements.

These proposals and subsequent actions are designed to enhance FINRA's existing high-risk broker programs. Built on extensive data and analyses, these programs are specifically designed to identify and address high-risk brokers, including through disciplinary actions, enhanced examinations, and ongoing surveillance.

FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit

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