FINRA COULD IMPOSE NEW REGULATIONS ON BROKER-DEALERS AND FIRMS

On behalf of Girard Bengali, APC on Tuesday, May 28, 2019.

Brokers and financial firms in California and nationwide may be interested in a report that the Financial Industry Regulatory Authority could crack down on over 60 firms after proposing a new rule. The authority oversees over 3,700 broker-dealers engaged in securities transactions. While a FINRA executive said that those who could be affected numbered less than 2% of all broker-dealers, that remains a significant amount.

The newly-proposed FINRA rule requires firms with previous allegations of securities misconduct or that hire brokers with disciplinary records to take additional measures to meet their obligations to the regulatory authority. FINRA would be able to order these firms to create accounts controlled by the authority to pay out arbitration awards or settle claims, for example. The vast majority of the companies that would be affected by the rule are smaller firms with less than 150 registered representatives, while six are considered mid-sized and employ less than 500 broker-dealers. FINRA says that these firms and brokers pose a much higher risk of securities misconduct than others, given their existing history of misconduct allegations, sanctions or settlements.

The FINRA CEO said that companies with higher levels of previous misconduct have almost 10 times the number of later incidents than the industry as a whole. He said that identifying these firms and broker-dealers could help to prevent future misconduct or ameliorate the effects of unpaid arbitration awards by creating reserve accounts to ensure that successful claims were paid.

At the same time, inaccurate claims of misconduct could also seriously hinder the careers of broker-dealers, especially as firms may need to take on a larger burden to work with people with previous misconduct claims. A securities litigation attorney an represent financial professionals accused of misconduct and work to protect their careers. 

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