The US Financial Industry Regulatory Authority’s (FINRA) board
of governors has approved the next step in what it terms its ongoing initiative
to strengthen controls on brokers with a history of significant past misconduct.
The recommended changes also seek to ensure greater
accountability for firms that choose to employ high-risk brokers.
FINRA says it plans to issue a Regulatory Notice seeking
comment on the key proposals – which would strengthen protections for investors
and range from additional disclosure on its BrokerCheck platform to heightened
supervision of brokers appealing disciplinary matters.
“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,” says Robert Cook, FINRA president and CEO.
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.
FINRA says it 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, the new obligations 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