FINRA seeks tighter controls on high-risk brokers

The Financial Industry Regulatory Authority (FINRA) Board of Governors will seek public comment on its proposals to strengthen protections for investors.

The proposals include a range of provisions, including additional disclosure on BrokerCheck and heightened supervision of brokers with a history of misconduct. The proposals are designed to identify and address high-risk brokers, including through disciplinary actions, enhanced examinations, and ongoing surveillance.

“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,” FINRA President and CEO Robert Cook said.

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 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. They would also 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.

FINRA also proposed 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.

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.